Intel Corp., the world's largest chip maker, scaled back its second-quarter revenue forecast Thursday because of lower-than-expected demand for personal computer processors in Europe, sparking a steep slide in its stock in after-hours trading.
The bad news from Intel probably will spur more losses today, after a rough Thursday on Wall Street, where U.S. stocks hit eight-month lows, analysts said.
"I think everyone is going to get whacked [today]," said Dan Scovel, an analyst with Needham & Co.
Intel, known for its Pentium microprocessors that are the brains of most personal computers, said it expects sales for the period ending June 29 to be $6.2 billion to $6.5 billion, down from the previous estimate of $6.4 billion to $7 billion.
Analysts were expecting second-quarter sales of $6.7 billion and net earnings of 15 cents a share, according to Thomson Financial/First Call. Last year, the company recorded sales of $6.3 billion and profit of 12 cents for the period.
Early second-quarter sales may have been reduced by customers waiting for Intel's May 26 price cuts, which averaged about 31% for desktop processors and 46% for notebook chips, said Jonathan Joseph, a Salomon Smith Barney analyst.
"I think it shows greater expectations of weakness in the PC market," he added.
Although investors and analysts had prepared themselves for a narrowing of the revenue range toward the lower end, that Intel took the bottom out of the previous range was a surprise, indicating that demand is even weaker than earlier thought.
Intel also lowered its expectations of gross margin to about 49%, from its previous forecast of 53%, plus or minus a couple of points, because of lower-than-expected revenue and product mix. Gross margin is the proportion of revenue remaining after subtracting product costs.
Intel's announcement sent its shares down $2.71 to $24.29 in after-hours trading.
The shares had closed off $1.18 to $27 on Nasdaq after trading lower all day, dragged down by a downgrade from Merrill Lynch analyst Joe Osha.
Osha, seen as an Intel stalwart, cut his rating on the company to a "neutral" from a "strong buy," citing "a lack of visibility into the personal computer end market, particularly on the corporate side."
The ratings cut came ahead of Intel's scheduled mid-quarter conference call and surprised some investors.
Osha said investors were more concerned about Intel's lowered forecast for gross margins than revenue.
Two smaller chip makers had better news, however.
National Semiconductor Corp. reported a surprise profit Thursday in its fiscal fourth quarter, citing strong demand for chips used in cellular phones and flat-panel monitors. For the three months ended May 26, National Semiconductor earned $17.1 million, or 9 cents a share--contrasted with a loss of $44.4 million, or 26 cents a share, in the same period last year.
Texas Instruments Inc., the biggest maker of processor chips for cell phones, reaffirmed its second-quarter forecast of about $2 billion in sales and profit of 5 cents a share.