Intel warns revenue won't meet expectations

Intel today warned that third-quarter revenue will be below expectations, citing weaker demand in Europe.

The chipmaker said revenue for the third quarter is likely to be only 3 percent to 5 percent higher than second-quarter revenue of $8.3 billion.

"It's demand related, and it is focused exclusively in Europe," Intel spokesman Tom Beerman said. "The other geographies are coming in as expected."

Intel shares dropped almost 20 percent in after-hours trading, falling $11.73 to $49.75. Technology stocks were down across the board, as the Intel news fueled industry-wide fears of a slowdown in PC sales.

Lehman Brothers analyst Dan Niles said today that demand in Europe has dropped because PC prices, set in dollars, have climbed there as the euro has weakened.

Estimates of third-quarter PC sales have been all over the map. While many analysts have said the third quarter looked to be on track, several had cautioned that the last several weeks of the quarter were going to be critical, with Intel needing to do strong business to hit expectations.

Typically, 45 to 50 percent of PC sales in the third quarter come in September, according to Niles, and the first two weeks of the month typically are lighter than the last two.

Meta Group says Intel's anticipated lag in third-quarter revenue is more a result of general business conditions driven by the recent substantial drop of the euro rather than a softening of fundamental demand for PCs. see commentary

Intel's profit expectations also are likely to be affected this quarter. The company warned that gross margin for the third quarter will come in around 62 percent, lower than the company's previous expectations of approximately 63 to 64 percent.

Meanwhile, profit from interest and other outside sources is now expected to come to $900 million for the third quarter, up from the previous projection of $800 million.

By contrast, rival Advanced Micro Devices had been saying all quarter that it remained on track for its goal to ship 3.6 million of its Athlon and Duron processors, twice as many chips as it shipped the prior quarter. AMD spokesman John Greenagel declined to comment today on AMD's business, citing a "quiet period" imposed during the last two weeks of the quarter.

Typically, revenue increases more than 3 percent to 5 percent between the second and third quarters. A recent report from Morgan Stanley Dean Witter, for instance, predicted the microprocessor market as a whole would grow by 12 percent this quarter over last quarter.

Intel itself said revenue would rise in the third quarter and indicated it expected to see a typical seasonal jump. The company did not predict percentage growth, however.

Intel shares plunged Sept. 5, after U.S. Bancorp Piper Jaffray analyst Ashok Kumar downgraded the company, saying PC unit growth would be, at best, about half of the 12 percent estimated by most analysts.

"It's in line with what we expected," Kumar said after Intel's warning today. However, Kumar's note predicted global sales weakness based on poor corporate sales rather than specific problems in Europe. Additionally, Kumar reportedly left a voice mail for his sales force this week saying the news had been reflected in Intel's stock drop.