* Credit crisis could hurt Intel customers and suppliers
* Shares up a bit after falling as much as 3 pct
(Adds analyst comments, updates shares, changes dateline
previous NEW YORK)
By Gabriel Madway
SAN FRANCISCO, Oct 31 (Reuters) - Intel Corp (INTC.O) warned
on Friday the credit crisis could hurt demand for its chips, and
lead to the insolvency of key suppliers which could result in
product delays.
The news initially drove its shares down 3 percent, but the
stock recovered as Wall Street appeared to dismiss the comments
as standard risk warnings in Intel's 10-Q quarterly report filed
with the U.S. Securities and Exchange Commission.
The world's largest chip maker, which makes 80 percent of
microprocessors that power personal computers, gave no new
financial forecasts. It will issue a mid-quarter update on Dec.
4, its first mid-quarter update in three years, a spokesman
said.
"Current uncertainty in global economic conditions poses a
risk to the overall economy as consumers and businesses may
defer purchases in response to tighter credit and negative
financial news, which could negatively affect product demand and
other related matters," Intel said in the third-quarter filing.
These comments were not in its second-quarter filing.
"There could be a number of follow-on effects from the
credit crisis on Intel's business, including insolvency of key
suppliers resulting in product delays," it said.
Stifel Nicolaus analyst Cody Acree said some of Intel's
materials and equipment suppliers in China may be at risk for
insolvency, but the companies are "very small players" that
Intel could simply acquire to ensure continuity.
"Intel has $12 billion on the balance sheet so there's quite
a bit of room for them to step in and make sure the supply chain
is not disrupted."
UBS analyst Uche Orji also found little cause for worry in
Intel's new disclosure, calling it a "standard risk comment."
"If Intel was going to give a profit warning, it would be
specific," he said.
Orji did lower his fourth-quarter, 2009 and 2008 forecasts
for Intel, but he said the move was made independently of the
filing. He still rates Intel a "buy."
"My view is, let's take a hatchet and create a recession
scenario, which is now what UBS is calling for in 2009. We think
that you will see a combination of both unit decline in PCs,
margin decline for Intel, leading EPS to fall dramatically,"
Orji said.
Intel spokesman Chuck Mulloy said the filing is consistent
with the "dynamic" environment in which the company is
operating.
"Business fundamentals are good for Intel. However, the
macro-economic climate is something we don't have as much
visibility into."
Other risks cited by Intel in its 10-Q include the inability
of customers to obtain credit to finance purchases of Intel
products, as well as the company possibly facing its own
difficulties in obtaining short-term financing from the issuance
of commercial paper.
When Intel reported third-quarter results in mid-October, it
provided investors with wider-than-usual forecast ranges for the
fourth quarter due to uncertainties about the global economy.
The company had forecast fourth-quarter revenue between
$10.1 billion and $10.9 billion, which it said was weaker than
typically seen in the period running up to the year-end holiday
season.
Intel typically does not issue mid-quarter guidance, and
Acree said investors will be watching carefully for new signs of
economic weakness. "That will give us at least a firm picture of
visibility by that point," he said.
Intel said on Friday that while its inventory levels are
currently appropriate, economic uncertainty may result in
lower-than-expected demand and force the company to write off
excess inventories, thereby hurting its gross margin.
It noted that some customers are building inventory, but
"with the current macroeconomic environment, it is hard to
discern what demand will be for the fourth quarter of 2008."
Shares of Intel fell as low as $15.62 before recovering to
trade up 16 cents at $16.33 on the Nasdaq. Shares of smaller
rival Advanced Micro Devices Inc (AMD.N) were up 11 cents at
$3.67 on the New York Stock Exchange.
(Additional reporting by Tiffany Wu and Franklin Paul in New
York and Ajay Kamalakaran in Bangalore, editing by Matthew
Lewis)
