Q2 to fall below expectations at Intel

Summary:Intel Corp. stunned Wall Street today, announcing that revenues for the second quarter would fall below expectations, due to weaker-than-expected demand in the United States and Europe.

Intel Corp. stunned Wall Street today, announcing that revenues for the second quarter would fall below expectations, due to weaker-than-expected demand in the United States and Europe.

The Santa Clara, Calif., chip giant warned investors after it released first-quarter figures that it expected the second quarter to be flat to slightly higher. But now officials say the company will likely fall 5 percent to 10 percent below the $6.4 billion in sales it brought in during the first quarter.

"We started seeing pretty significant softness in the numbers, especially [the numbers] out of Europe," said Intel spokesman Howard High. Much of the softness is in the company's Pentium processor line, which is seeing a slowdown as users begin to demand Intel's faster, newer processors, particularly the Pentium with MMX technology and the Pentium II.

High said the market was moving to MMX faster than Intel had anticipated.

The news had an immediate and disastrous effect on the company's stock price, sending it plunging down $20.76 to $142.94 in morning trading. The news will likely send almost all of the technology stocks tumbling, since Intel is seen as a barometer of the entire industry. Shortly after the market opened, Microsoft Corp. fell $6.75 to $119.12 and Dell Computer Corp. dropped $8 to $102.37.

But some analysts looked at it as just a blip.

"I don't think it signals an overall slowdown in the market," said Bruce Stephen, an analyst at International Data Corp., in Framingham, Mass. Stephen noted that the first quarter benefited from consumers buying MMX systems, and the market may be experiencing a seasonal slow-down.

Stephen added that he couldn't remember "a point at which so many technology transitions are happening at once," not just in chips but in operating systems and other areas, and in an atmosphere where cost-of-ownership issues loom large. These shifts may be slowing corporate buying, he said.

Intel, meanwhile, is focusing on accelerating its own transitions, ramping up production of its Pentium with MMX processors and its Pentium II lines, High said.

Intel will report its second-quarter figures around July 15, High said. Gross margins are also expected to slip below the 64 percent figure achieved in the first quarter. For the year, the company has revised its estimate of 60 percent margin, give or take a few points, to the "mid to high part of that range."

Expenses also will rise 7 to 9 percent in the second quarter from the $1.3 billion spent in the first quarter. For the year, Intel expects to spend $2.4 billion in research and development.

The news comes at a charged time for Intel. Next week, the company will demonstrate its Visual Computing platform and will present its road map for the year to financial analysts. Until this morning, the question expected to be at the top of most analysts' minds was the current legal imbroglio between Intel and Digital Equipment Corp.

The analysts' meeting prompted this morning's announcement.

"We happen to go into New York next week to talk to the Wall Street crowd. If we weren't going into Wall Street, we might hold a week or two to see if [the numbers] stay consistent," High said. "We wanted to put the numbers out on the table, rather then go in there, give our spiel and have news unexpectedly come out."

Topics: Intel, Hardware, Processors

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