Intel lowers revenue forecast
Chip maker sees weak demand, market shares loss as reasons to cut 1st-quarter outlook.
NEW YORK (CNNMoney.com) - Intel warned investors Friday that sales for the current quarter will fall short of an earlier forecast because of weaker-than-expected demand and what it called a "slight" market share loss.
The No. 1 chipmaker said it's now expecting revenue to fall between $8.7 billion and $9.1 billion, short of the $9.1-$9.7 billion range forecast when it reported financial results in January that also missed Wall Street expectations.
Intel said the revenue shortfall will adversely impact its gross margin, a key measure of profitability. The company said expenses will likely be lower than previously forecast because of lower revenue- and profit-related spending.
"This was a holdover reverberation from problems we already know about," said Cody Acree, an analyst with Stifel Nicolaus. "This is a larger disappointment than we expected, but it's not a change in what we and most of the Street already knew was coming."
Acree said Intel is dealing with clearing out inventories of older chips while it struggles with short supplies of the pairs of chips it needs for newer microprocessors.
Acree said he expects Intel to continue feeling the fallout from its 2005 problems for the next few months, but he expects the company to bounce back later in the year.
"This is a tale of two companies," he said. "This first quarter and first half, they are dealing with problems from 2005, and it will weigh on Intel. But as they bring out new products -- and many more are coming out -- then we may start to see a different, more competitive Intel."
But some investors are getting cold feet. Jim Fisher, vice president and portfolio manager with Souderton, Pa.-based Univest Wealth Management & Trust, which manages about $1 billion in assets, recently sold his firm's shares of Intel.
"In the short term, I lost confidence; I want to focus on higher growth potential stocks," he said. "Longer-term investors are okay, but this really is a stock picker's market."
If the company can rebound from its current troubles and regain some of its lost market share, Fisher said he may reconsider investing in the company.
Intel's difficulties came to light in January, when it reported fourth-quarter sales and earnings that fell short of analysts' expectations.
Intel reported sales of $10.2 billion and net income of $2.45 billion, or 40 cents a share, while Wall Street analysts had been expecting revenues of $10.56 billion and earnings of 43 cents. The sales fell short of the company's own forecast of $10.4 billion to $10.6 billion, issued in the middle of the fourth quarter.
Intel CEO Paul Otellini told investors at the time that the company was starting 2006 "in a bit more of a hole ... than we had originally thought."
The company will host its annual developers' forum next week.
Intel's disappointing first quarter: more here.
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