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Intel slashes sales outlook as spending, demand fall

The chip company cuts its fourth-quarter forecast by $1 billion as PC makers' troubles spread to parts firms.

November 13, 2008|the associated press

SAN FRANCISCO — Intel Corp. whacked more than $1 billion from its fourth-quarter revenue forecast and ratcheted down its profit expectations because a clampdown on spending is reducing demand for its chips.

Intel's announcement illuminates how the economic crisis is rippling across industries. As consumers and businesses cut back on buying computers, PC makers and their suppliers are feeling the pain.

Intel now expects sales of $9 billion in the last three months of the year, plus or minus $300 million, down from a previous forecast of $10.1 billion to $10.9 billion. Analysts polled by Thomson Reuters expected $10.3 billion. Intel blamed "significantly weaker-than-expected demand in all geographies and market segments."

Intel's profit is being hurt badly. The firm's closely watched gross profit margin will now come in around 55% of revenue, plus or minus a couple of percentage points. The previous guidance was for about 59%. Gross margin measures profit on each dollar of revenue once manufacturing costs are stripped out. It's an especially important measurement for chip makers because upgrading and maintaining their factories is a huge expense.

The technology sector is bracing for a prolonged slump. Cisco Systems Inc., the world's largest maker of computer networking gear, offered a sign of the trouble last week when it reported that orders fell off abruptly in October.

As the first major technology company to report results including October, Cisco's grim forecast suggested that other tech companies would probably have to absorb major damage to their sales as well.

More specific warning signs for the PC sector emerged last week when Lenovo Group Ltd., the world's fourth-largest PC maker, reported that its profit plunged 78%.

Intel shares fell $1.13, or 8.4%, in extended trading after the warning was announced. The stock had fallen 41 cents, or 2.9%, to $13.52 during regular trading.

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