Intel executives said that over the past three weeks they have seen "increasing negative signs" as well as larger order cancellations from a number of major customers.
"As it has turned out, the economy worldwide appears to be slowing more quickly than we anticipated," chief financial officer Andy Bryant said in a conference call.
As a result, Intel now expects revenue for the fourth quarter to be roughly flat with third-quarter revenue of $8.7 billion, plus or minus a few percentage points. This is lower than the previous expectation that fourth-quarter revenue would be up 4 percent to 8 percent from third-quarter revenue.
The company's announcement came after the close of regular market trading, when the shares gained 56 cents to $32.31. In after-hours trading, the shares climbed about 20 cents, an indication that investors expected a revenue shortfall.
Thursday?s warning marks the second such blow for the company in as many quarters. On Sept. 11, Intel said revenue for the third quarter was likely to be only 3 percent to 5 percent higher than second-quarter revenue of $8.3 billion. That warning sent Intel shares sliding about 20 percent, sparked a series of analyst downgrades, and raised concerns of an overall slowdown in the PC sector.
Also Thursday, Intel said its profit margins will be around 63 percent, as expected, because it will cut expenses.
However, the chip giant said it expects the amount of money it gets from interest income and sales from its investment portfolio to be $275 million below prior expectations because of the declining value of many technology stocks. Intel now expects interest and other income for the fourth quarter to total $675 million.
The fourth quarter has always been the strongest period for the computer industry as the holiday shopping season kicks in. However, computer makers including Gateway and Apple Computer have warned recently that PC sales, particularly to consumers, are significantly slower than expected.
Tech stock woes continue
John Powers, managing director, Robertson Stephens
Intel spokesman Tom Beerman said the company is seeing weakness across all geographic regions and all segments of the PC business. "We're seeing weakness in both consumer and corporate (PC sales), although we're seeing more of an effect on consumer sales."
The only bright spot appears to be consumer PC sales in China and Japan, Intel said.
Thursday's announcement came on the same day market researcher IDC issued a report on the PC market. IDC pointed to strong overseas PC demand and projected nearly 20 percent global growth in the fourth quarter, compared with the same period last year.
But the market researcher cut its growth forecast for the U.S. consumer PC market from 21.2 percent down to 10.2 percent, compared with the same period last year. That means PC makers will ship 500,000 fewer units, said IDC analyst Roger Kay.
Technology Business Research analyst Humberto Andrade sees darker days ahead for Intel than for rival Advanced Micro Devices.
"The U.S. is slowing but not overseas," Andrade said. "I don't think AMD is going to suffer as much as Intel because 60 percent of AMD's sales is coming from overseas."
In its most recent report on Intel, Technology Business Research forecast just 1 percent growth for the company in the fourth quarter compared with the third quarter.
"So we weren't surprised," Andrade said. "We never bought the idea they could grow 8 percent to 10 percent."
Market researcher ARS last week reported that PC inventories continued to rise as consumer sales collapsed in October and November. Stock sitting on dealer shelves jumped to 7.4 weeks in October from 3.9 weeks a month earlier. Retail leaders Compaq Computer and Hewlett-Packard have 10.5 weeks and 5.6 weeks, respectively, of inventory on dealer shelves.
Intel executives said inventories of processors and already-built computers are "within the historic normal range," although there has been some buildup in Taiwan of the companion chipsets used to make low-end computers
Signs of slowing PC sales are everywhere, said PC Data analyst Stephen Baker. He emphasized, "This is no longer just a consumer PC thing, but a corporate PC thing."
PC Data's November preliminary accounting has PC retail sales down 12 percent year over year. "That's pretty bad, about the worst we've seen," Baker said. "Intel is certainly hearing that."
Ashok Kumar, an analyst at U.S. Bancorp Piper Jaffray, said the PC industry is moving "from a nearly 30 percent growth rate at the beginning of this year to a 2 percent growth rate. Essentially, it's come to a screeching halt."
Because the PC industry is one of largely fixed costs, "when the top line falls off dramatically, the bottom line falls off even more dramatically," Kumar said.
"It's amazing how things just turned around on a dime," he added. "All these companies are basically in a build-to-forecast mode, like 'Field of Dreams'--build it and they will come. Essentially, no one is coming."
Kumar predicted it will take PC makers two additional quarters to clear out inventory that has built up as sales have unexpectedly slowed. The PC slowdown will also mean fewer orders for Intel in the interim.
"Basically, you don't get any light at the end of the tunnel until the second half of next year," he said.
Intel's Bryant did not want to speculate on whether PC sales will pick up in the first half of next year, saying he wants to see what happens with the broader economy.