Intel Cuts Outlook on Weak PC Demand

Aug.29.10 | About: Intel Corporation (INTC)

Just weeks after an upbeat assessment about its prospects, chip giant Intel (NASDAQ:INTC) cut its revenue outlook for the third quarter based on weak demand for consumer PCs.

The company said in a statement that third quarter revenue will be $11 billion, give or take $200 million. That’s down from a previous outlook of $11.2 billion and $12 billion.

Wall Street was expecting revenue of $11.52 billion with earnings of 53 cents a share.

According to the company:

Revenue is being affected by weaker than expected demand for consumer PCs in mature markets. Inventories across the supply chain appear to be in-line with the company’s revised expectations.

Intel expects gross margins to be about 66 percent, down from the 67 percent it projected. Enterprise demand appears to be solid.

The news is quite a turnabout from Intel’s outlook on July 13. On its second quarter earnings conference call, Intel was upbeat. Nevertheless, some analysts noted that semiconductor companies are always last to know that a downturn is coming.

However, Intel’s news shouldn’t be that surprising and arguably could have been worse. Analysts have been downgrading Intel and AMD because the Asia PC supply chain looks worrisome.

Among the key worries over the last month:

  • Wedbush analyst Patrick Wang said “following a round of industry checks, we come away incrementally more negative on the PC supply chain, in light of lowered 3Q forecasts for both Intel and AMD as well as an expectation for softer DRAM pricing and questionable demand.”
  • Analysts said that inventories are rising and visibility into demand is hazy at best.
  • Notebook builds were tepid in July and distributors are cutting inventory levels.
  • Back-to-school demand just isn’t there. Barclays Capital analyst Tim Luke said “while still early in back to school cycle, broader PC trends for 3Q have continued to remain subdued & seasonal sales guidance may prove bold.”
  • Meanwhile, Baird downgraded Intel based on weak PC demand. J.P. Morgan noted that PC orders are falling off a cliff.

Original post