Intel reduces 2nd-quarter forecast

By Matthew Fordahl, The Associated Press
Friday June 07, 2002

SAN JOSE – Citing a lower-than-expected demand for personal computer processors in Europe, Intel Corp. on Thursday scaled back its second-quarter revenue forecast. 

The chip-making giant expects sales for the period ending June 29 to be between $6.2 billion and $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 profits of 12 cents for the period. 

Santa Clara-based Intel blamed the shortfall on softening demand in Europe. The company also said sales of microprocessors are at the low end of the normal seasonal pattern. 

Enterprise, communications and mobile businesses, however, are in line with expectations, the company said. 

Intel also estimated its gross margin to be about 49 percent, compared to the previous forecast of 53 percent, due to a lower-than expected revenue and product mix. The gross margin is the ratio of gross income to sales. 

After the news was released, shares of Intel fell $2.63 to $24.37 in after-hours trading. Earlier Thursday, the stock closed down $1.18 to $27 in trading on the Nasdaq Stock Market. 

“The real issue and the reason the stock is trading off is not the revenue — it’s the gross margin,” said Merrill Lynch analyst Joseph Osha. “The gross margin target is well below where people thought it was going to be.” 

The quarter is typically slow for Intel, as there are no major holidays or back-to-school events to boost sales. There also is little evidence of major increases in business computer sales after last year’s tech slump. 

“Our concerns here relate to the lack of visibility into the PC end market, particularly on the corporate side, rather than anything company specific,” Osha said in a research note before Intel’s announcement. 

Osha lowered his intermediate-term rating to “neutral” from “strong buy” but is maintaining a “strong-buy” rating for the long term. 

Early second-quarter sales may have been reduced by customers waiting for Intel’s May 26 price cuts, which averaged about 31 percent for desktop processors and 46 percent 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. 

Another chip maker, 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 per share — compared with a loss of $44.4 million, or 26 cents a share, in the same period last year.