As if El Niño had hit Wall Street, the past year has been a long stormy season for Intel's stockholders, and the waters are getting rougher after the company announced that it delayed its Merced chip project.
The chipmaker's stock dropped to 68.13 in early morning trading today, nearly a 5 percent drop from its close Friday of 71.4.
Analysts reacted with a round of downgrades and revisions for expected earnings projections.
Lehman Brothers lowered its 1999 earnings per share estimate on the chip giant to $3.50 from $3.55, and its 2000 estimate to $3.60 from $3.90 a share, but maintained its "neutral" rating on the stock. Salomon Smith Barney lowered its 1999 estimate to $3.70 from $4.05, but maintained its "buy" rating on the stock.
During the past 52 weeks, the chip giant's stock has fluctuated between 70 and 100--most recently lingering in the low 70s.
The company, whose chips are inside more than 80 percent of the world's personal computers, is facing an antitrust lawsuit by the Federal Trade Commission. Intel also is facing slower growth as the demand for personal computers eases from the 20-plus percent growth of recent years, along with pricing pressure as computer prices fall below $1,000.
If this weren't enough, the chipmaker Friday announced that there would be a delay in its Merced chip project--a key component of the company's future server and workstation sales. (See related story)
The stock fell in after-hours trading following that announcement. Intel was trading at 70.5 in after-hours activity, after closing down 2.06 at 71.44 earlier in the day.
Merced, the 64-bit processor from Intel, will be delayed about six months. The timetable for volume production has been pushed back from 1999 to the middle of the year 2000. One comforting footnote for Intel investors: The delay appears to be the result of a manufacturing problem, rather than a flaw in the chip's design, according to analysts.
For Intel investors, the delay in Merced adds an element of uncertainty. The stock was trading at the same level Friday that it was trading at in January 1997.
During the past two quarters, Intel's earnings have fallen below year-over-year comparisons, and revenue for the March quarter also slipped to $6 billion, down from the $6.4 million reported in the previous March quarter.
Earnings for the March quarter were 78 cents per share, compared with the $1.21 per share reported in the March 1997 quarter. In the December 1997 quarter, earnings were $1.07, compared with $1.16 a year earlier.
The outlook for the current second quarter, which ends in June, does not look much brighter.
Paul Otellini, an executive vice president at Intel, said after the company's most recent earnings announcement that revenues would stay flat for the second quarter, while gross margins would decline due to faltering demand and the high costs associated with the production of Pentium II chips. He predicted that demand would return during the second half, while profitability would increase due to the release of higher-margin Xeon chips for servers.
In the wake of several warnings, Intel investors have created something of a tug-of-war effect with the company's stock. For example, during the six days following the earnings announcement in mid-April, Intel shares climbed nearly ten points, to 84.06, only to sink back into the low 70s. The stock has traded as high as 102 during the past year.
The outcome of a looming lawsuit by the FTC also adds an element of uncertainty.
"We don't know details about this suit," one options analyst told Reuters. "There's only speculation, and that's causing a lot of anxiety."
Another trader said there was still talk on the Street that Intel would issue a profit warning early next week. The company is scheduled to release its second quarter results on July 14.
On another front, Intel may have to repay at least $2 million in tax incentives to Washington state because of its decision to close a computer assembly plant there, officials said.
Intel said this week that as part of the 3,000 job cuts it announced in April, 650 workers are likely to be laid off in August as a result of the company's decision to close its DuPont, Washington, computer assembly plant, which opened in 1996.
Washington state used sales tax breaks and a new highway interchange to convince the Santa Clara, California, company to build the DuPont plant, where workers assemble computers for Sony, Dell, and other brand-name computer makers.
The $140 million DuPont facility also is home to a research and development campus that employs about 1,200 people. Fisher said Intel intends to maintain this operation.
(Intel is an investor in CNET: The Computer Network.)
Reuters contributed to this report.