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Intel dive hammers techs
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June 3, 1998: 8:18 p.m. ET
Hambrecht & Quist earnings estimate cut ignites a blaze of selling
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NEW YORK (CNNfn) - Shares of Intel tumbled to their lowest level in more than a year Wednesday after an influential investment bank cut its earnings estimates for the chip giant.
Citing weaker than expected sales of personal computers in the United States, Hambrecht & Quist analyst Robert Chaplinsky slashed his second quarter estimates by 6 percent, igniting a late session selloff that battered Intel's stock and reverberated into the broader market as well.
Intel shares tumbled nearly 5 percent Wednesday to 65-15/16 on heavy volume of 26 million shares. In after-hours trade, however, Intel rebounded to 68-5/8 after the company denied rumors that it was preparing to issue a warning on the current quarter's outlook.
Nevertheless, A.G. Edwards analyst Christopher Chaney said investors' faith in Intel has been shaken recently by pricing pressures, increased competition from copy-cat chip makers, and a government investigation into its business practices. (189K WAV) or (189K AIFF)
For much of this decade Intel has been a bull market darling. As one of the most widely held stocks in the nation it has a place in more than a quarter of all mutual funds.
That position has been well-deserved with the chip maker boasting a 40 percent annual return over the last five years.
But lately Intel has been flaming out, plunging 35 percent since last summer -- a move that has erased $57 billion in market value.
Adding to the company's woes, Intel's Merced chip, a key part of Intel's strategy to attack the high end computer workstation market, is now scheduled to go into production in mid-2000 -- six months later than planned.
Industry analysts said while the Merced chip was not expected to be a big boost for the company in 1999, weaker demand for PC's in the United States could hurt Intel's results in the current quarter ending in June.
In a research report faxed to clients late Wednesday, Chaplinsky said he cut his second-quarter estimate to 65 cents a share from 69 cents, and trimmed his full-year projection to $2.92 a share from $3.04. (195K WAV) (195 AIFF).
Consensus estimates for Intel, according to First Call, are for 70 cents a share in the second quarter and $3.15 a share for the full year.
Intel (INTC) is due to report second quarter earnings in mid-July.
News of the estimate cut, which was reported minutes before the market had closed, quickly spread to other technology issues and also affected the Dow industrials.
The Nasdaq Composite lost 19.48 to close at 1,742.31 and the Dow industrials closed at 8,803, down 87 points.
Earlier in the session another Wall Street firm warned its clients Intel might pre-announce a shortfall. Deutsche Morgan Grenfell analyst Scott Nirenberski did not cut his estimates, but he did warn clients that earnings could come in as much as 10 cents below the firm's 70 cents-a-share forecast.
Intel warned in April of flat revenues
In mid-April, Intel told analysts it expects revenue for the second quarter of 1998 to be flat to slightly down from the $6 billion reported in the first quarter of 1998. The company also said it expected sequential revenue growth to resume in the second half of 1998.
At the time, Intel added that gross margins -- the difference between what Intel sells its chips for and the cost of manufacturing them -- were expected to fall to its lowest level for the year in the second quarter, or a few points lower than the 54 percent margins reported in the first quarter.
Intel fears spread to other tech stocks
The heavy selling in Intel shares pushed most other major chip stocks into the red.
Advanced Micro Devices (AMD) fell 3/4 to 18. Texas Instruments (TXN) lost 1-1/2 to 48. KLA-Tencor (KLAC) dropped 1-13/16 to 28-5/8. Motorola (MOT) closed 1-11/16 points lower at 50-13/16.
Chip stocks were also hit by a trade industry report forecasting weaker semiconductor sales this year.
The Semiconductor Industry Association said it expects chip sales for 1998 will drop 1.8 percent to $134.6 billion.
Microsoft (MSFT) shed 1-3/16 to 84-5/16.
It was a mixed session for PC makers. Dell Computer (DELL) lost 2-3/8 to 80-1/4. But Gateway (GTW) rose 13/16 to 45-9/16, and Compaq Computer (CPQ) gained 3/16 to27-5/8.
Internet stocks were lower as a group with Yahoo! (YHOO) falling 2-13/16 to 102.
After the close, online music retailer CDnow (CDNW) said it is canceling a proposed secondary stock offering, because of flagging interest in Internet stocks. CDnow shares rose 1/2 to 17-3/4.
Komag (KMAG) dropped 1-3/16 to 8. Late Monday the disc drive equipment maker warned it will take a substantial charge and cut 10 percent of its work force.
Chip equipment giant Applied Materials (AMAT) gave up 1-3/16 to close at 29-3/8.
And Newbridge Networks (NN) was punished after its earnings fell short of Wall Street's last-minute projections. Its stock fell 4-5/8 to 25-3/8.
--from staff and wire reports
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