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Chip stocks fall on after-hours earnings warning

A revenue warning from chipmaker Altera sends chip stocks lower.

A revenue warning from chipmaker Altera sent chip stocks lower in after-hours trading.

After the close of regular stock market trading, the San Jose, Calif.-based company said fourth-quarter revenue will be flat with the $395 million generated in the third quarter. The company previously forecast revenue growth of 12 percent.

In after-hours trading, Altera shares fell $6.44, or almost 25 percent, to $19.50. In regular trading hours, the stock rose 3 cents to $25.94.

The company attributed the shortfall to accumulated inventory at subcontractors during the quarter, which caused a decline in new purchases. Subcontractors buy Altera's chips and install them in systems, which are then sold to companies such as Cisco Systems that manufacture finished products.

In addition, digital subscriber line (DSL) equipment makers "overbought in the first three quarters of the year and are now pulling back," Altera chief financial officer Nathan Sarkisian said in a statement.

Lehman Brothers analyst Dan Niles attributed one-third of the revenue shortfall to issues with DSL customers and the other two-thirds to customers served by subcontractors.

"It's even worse than we thought," said Niles, who cut his earnings estimates for Altera on Monday and said that the company would not make its 12 percent growth forecast.

Altera's woes depressed the shares of other chipmakers.

Intel fell $4.56, or about 11 percent, to $38.19. During regular trading, the chip giant inched up 72 cents to $42.75. Xilinx fell $7.12, or about 16 percent, to $35.88 in after-hours trading. Xilinx dropped $2.91, or 6 percent, to $43 during the day.