UPDATE 4-Intel cuts outlook on weak PC demand; shares slump

Fri Sep 7, 2012 12:51pm EDT

* Intel withdraws full-year forecast

* Cuts 3rd-qtr revenue view to $13.2 billion

* Shares down 3.4 pct

* Pulls back capital spending

By Noel Randewich and Nicola Leske

SAN FRANCISCO, Sept 7 (Reuters) - Intel Corp cut its third-quarter revenue estimate more than expected on Friday due to a decline in demand for its chips as customers reduce inventories and businesses buy fewer personal computers.

Intel also said it was scaling back capital spending as a result of the business slowdown. Intel's stock fell 3.6 percent, and shares of ASML and other companies that make chip-manufacturing equipment also lost ground.

A revision of Intel targets had been anticipated by some analysts after PC makers Hewlett Packard and Dell Inc warned of slow demand last month, a development that has been compounded by a shaky global economy and consumers shifting toward tablets and smartphones.

But the 8 percent reduction in the top chipmaker's revenue outlook was much more severe than expected. Intel also withdrew its full-year forecast.

The scaled-back outlook comes just days ahead of a major event where Intel will tout a new generation of processors that consume less power, central to its strategy of reinvigorating a stagnant PC industry.

Bernstein analyst Stacy Rasgon said the size of the Intel cut was surprising and was a worrying new sign that the company is seeing weakness in PC sales to businesses and governments, known as enterprise sales.

"They also have weakness in enterprise PCs in emerging markets. In the last six to eight quarters, consumers have been weak but the enterprise was strong. Now the enterprise is weak," Rasgon said.

WAITING FOR WINDOWS

Intel's warning comes at a time when PC makers should be gearing up to build more computers than usual ahead of the launch of Microsoft Corp's Windows Phone 8 operating system.

Intel has been banking on the Windows 8 release in October to help slow the trend of consumers buying smartphones and tablets instead of personal computers.

Devices running Windows 8 and powered by Intel's latest components will be a major draw when thousands of technology professionals descend on the annual Intel Developer Forum in San Francisco next week.

While a major Windows release normally boosts computer sales, analysts believe it might not help as much this time.

At the forum, Intel is expected to show off a range of Ultrabook laptops powered by recently launched Ivy Bridge processors, as well as hybrid devices with screens that detach from keyboards to be used as tablets.

Along with concerns about consumer demand being hurt by the weak economy, manufacturers are reluctant to commit their resources until they have a better idea of which kinds of new devices will become hits with consumers.

"You're trying to decide are people going to buy ... a tablet that slots into a keyboard, or are they going buy traditional notebooks or ultrabooks," MKM Partners analyst Daniel Berenbaum said.

"In the absence of knowing what to sell, there's a clear reluctance to build any sort of further inventory."

POWER-EFFICIENT CHIPS

Intel's next-generation PC processor, codenamed Haswell, will also be front and center at the forum, with executives talking up improved power performance that will let future laptops stay on longer without needing a recharge.

Haswell, due to appear in a crop of laptops released for next year's holiday season, will improve on computing and graphics features and is targeted to reduce electricity consumption from 17 watts to 10 watts, according to Intel.

Intel said it now expects third-quarter revenue of $13.2 billion, plus or minus $300 million, down from its previous forecast of $13.8 billion to $14.8 billion.

Analysts on average expected $14.2 billion. The company is due to report its third-quarter results in October.

Intel processors are used in 80 percent of the world's PCs, but the Santa Clara, California, company has been slow to adapt its chips for smartphones and tablets and now trails Qualcomm Inc and Samsung Electronics Co Ltd, which design their chips using power-efficient technology licensed from ARM Holdings Plc.

Intel, Advanced Micro Devices and others in the PC industry have been hit by a shaky global economy and consumers shifting toward tablets and smartphones.

Intel lowered its full-year revenue forecast in July, saying consumer spending in Europe and the United States had been weaker than it expected.

The company on Friday said full-year capital spending is expected to fall short of its previous forecast of $12.1 billion to $12.9 billion.

It expects gross margin of 62 percent for the third quarter, plus or minus one percentage point, down from its previous expectation of 63 percent, plus or minus a couple of percentage points.

Intel shares were down 3.6 percent to $24.18 in midday trading. AMD was off 4.6 percent at $3.49.

ASML's Nasdaq-traded shares fell 2 percent to $56.71, and chip gear maker Applied Materials fell 1.05 percent to $11.78.

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