UPDATE 1-Intel shares slide after analysts' downgrade

Tue Aug 10, 2010 3:05pm EDT

* Barclays cuts AMD to 'equal-weight'

* Baird sees Q3 likely below expectations

* Barclays: broader Q3 PC trends to remain subdued

* Intel shares fall 3.4 percent (Adds comments from analyst, byline, updates shares)

By Alex Dobuzinskis

SAN FRANCISCO, Aug 10 (Reuters) - Shares of Intel Corp and Advanced Micro Devices Inc fell on Tuesday after analysts downgraded shares of the world's top chip maker, warning of a weakening outlook for corporate and consumer IT spending globally.

Robert W. Baird and Barclays said they expected a subdued third quarter for Intel (INTC.O), even though Intel and competitor Advanced Micro Devices Inc (AMD.N) said last month they expected a strong three months. [ID:nN12197658]

Government austerity measures in Europe are causing cautious companies to rein in PC outlays in anticipation of a slowdown in consumer spending, analysts said. Gartner on Tuesday said it expects worldwide enterprise IT spending to grow by 2.9 percent this year, down from the 4.1 percent the research company had earlier forecast.

"What we're seeing now is more of a cyclical correction, but we see some very good growth trends for PCs in the next few years," Baird analyst Tristan Guerra said.

Intel controls about 70 percent of the processor market and derives about 90 percent of its revenue from the PC market. Its shares fell 3.4 percent, while AMD's dropped 7 percent.

Barclays downgraded Intel and AMD to "equal-weight" from "overweight," saying its Asian industry checks found that broader PC trends for the third quarter have continued to remain subdued, and seasonal sales guidance "may prove bold."

AMD and Intel's seasonal third-quarter guidance of 7 percent to 8 percent sequential sales growth could prove elusive, Barclays said.

It said PC shipments may be up in a range closer to 5 percent to 7 percent versus the normal 15 percent-plus range, reflecting more subdued demand from Europe, a slowing China, and cautious U.S. consumers, as well as rigorous inventory management following overzealous ordering in the first half of 2010.

IPAD - WILD CARD?

Other analysts foresaw Apple Inc's (AAPL.O) success with its iPad tablet computer, released April, eating into PC sector growth in the near term. Up to 15 million iPads could ship this year, which amounts to about half of expected netbook shipments for 2010, Guerra said.

"It clearly has an impact. The primary impact is on netbooks, but there is also cannibalizing at the low end of the notebook market."

Baird downgraded Intel stock to "neutral" and said its sales channel checks pointed to a sharp deterioration in PC-related order trends over the past week, following a below-expectations July.

The investment bank expects the trend to continue into August and said hopes of a meaningful recovery for September are less and less likely, leading to a third quarter that is likely to be below expectations.

In another negative signal for the industry, memory chip inventories have recently picked up sharply at distributors, Baird said.

Notebook shipments are now expected to be up at best 5 percent sequentially for third quarter, well below expectations, the brokerage said. Baird cut its price target on the stock to $22 from $30.

Intel shares traded at $19.95 in mid-day on the Nasdaq, while AMD shares were at $6.90 on the New York Stock Exchange.

The wider semiconductor index .SOXX was down 1.1 percent.

For research actions, click [RCH/US] (Reporting by Alex Dobuzinskis, additional reporting by Jennifer Robin Raj in Bangalore; Editing by Steve Orlofsky)

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