Intel announced yesterday that revenue for the third quarter is likely to be only 3 percent to 5 percent higher than second-quarter revenue of $8.3 billion. Analysts had been expecting sequential growth of 8 percent to 12 percent, with third-quarter revenue at $9 billion or more.
Intel blamed the disappointing results on flagging demand for its products in Europe. The Santa Clara, Calif.-based company generated about 27 percent of its revenue from European operations in 1999. Intel's chips power more than four out of every five personal computers around the world.
Intel, known for having incredibly favorable profit margins, also said it expects third-quarter gross margins to slip to 62 percent, down from its previous forecast of 63 to 64 percent.
Although virtually all old-economy manufacturing companies and even most technology companies would settle for Intel's newly lowered margins, investors and analysts reacted with extreme disappointment.
After a 45-minute trading halt following the company's announcement, Intel shares sank nearly $12 to $49.56--a 20 percent plunge that wiped out about $75 billion in market value. In midday trading today, Intel shares continued their downward slide to $48.47, down 21 percent from yesterday's close.
Although the stock is down almost 35 percent since the beginning of September, shares are still up 17 percent since the beginning of the year. By contrast, the tech-heavy Nasdaq is down roughly 12 percent for the year.
But Intel's relative performance was no comfort to analysts, who issued a raft of downgrades this morning.
"Our earlier skepticism regarding the euphoric expectations for microprocessor demand has been confirmed even more forcefully than we had expected," Merrill Lynch's Joe Osha wrote in his Intel research report.
Osha maintained his long-term "buy" rating--one of the few analysts who didn't downgrade the company.
Downgrades were issued by analysts at Prudential, Deutsche Banc Alex Brown, Salomon Smith Barney, Morgan Stanley Dean Witter, CIBC World Markets, ABN AMRO, Dresdner Kleinwort Benson, Chase Hambrecht & Quist and Goldman Sachs.
Only one brokerage took a bullish stance on Intel today by upgrading its rating. Analyst Richard Whittington at Banc of America Securities raised his rating to "buy" from "market perform." He upped his price target to $70 from $55 per share.
Several prominent financial institutions maintained their ratings but issued negative reports and cut their 12-month price targets on Intel.
Analyst David Wong at PaineWebber maintained his "attractive" rating on Intel, but he cut his 12-month target price to $70 from $85 per share.
Analyst Dan Niles at Lehman Brothers maintained his "buy" rating but cut his fiscal year 2000 and fiscal year 2001 earnings-per-share estimates to $1.63 and $1.65 from $1.74 and $1.90, respectively. He slashed his price target to $65 from $88 per share.
Intel's plunge was not wholly unanticipated, nor have investors been uniformly bullish on the volatile semiconductor sector.
The Philadelphia Semiconductor index fell 4.5 percent yesterday, extending its loss in the past three months to more than 20 percent. By comparison, the Nasdaq fell almost 2 percent and is down about 4 percent in the past three months.
But the starkly worded Intel warning yesterday seemed to catch Niles and other prominent analysts off guard.
Lehman Brothers issued a contrite note to investors this morning, apologizing for past bullishness. Sagging demand for personal computers in Europe, possibly because of the increasing cost of oil, took a greater toll on Intel than Lehman Brothers had forecast.
"We apologize for unfortunately underestimating the main factor that concerned us in our First Call note yesterday, which was Europe," Lehman Brothers stated in its note. "Though Intel has heard that some of their customers have seen a turnaround in Europe, they have not. They also did not pull in revenues to make the quarter."