Worries about PC sales snowball; Intel downgraded

Summary:Another analyst has hopped off the Intel bandwagon, this time over concerns about waning PC sales.In a research note on Friday, J.

Another analyst has hopped off the Intel bandwagon, this time over concerns about waning PC sales.

In a research note on Friday, J.P. Morgan analyst Christopher Danely downgraded Intel from "overweight" to "neutral." Intel, along with AMD and other chip makers, was downgraded on Wednesday over the same concern. The big fear: An economic slowdown is crimping PC sales. Danely slightly lowered his earnings and revenue targets for Intel.

Simply put, analysts expect semiconductor companies to be stuck with a glut that pinches profits. On the bright side, chip makers will have to cut prices to clear out inventory and that benefits buyers. So-called "inventory corrections" can work out nicely if you're in the market for a PC--assuming computer makers pass on cost decreases.

Here's what Danely had to say:

Our checks indicate Intel experienced a late-quarter slowdown in order rates from the PC end market which negated the upside we believed Intel experienced earlier in the fourth quarter.

Danely goes on to cite that "negative PC data points (are) piling up."

We believe the weakness in order rates could be coming from Europe, as both Acer (fourth largest PC OEM) and European electronics retailer DSG recently lowered estimates due to lower than expected order rates from Europe.  We would note Europe represented roughly 23% of overall PC demand during 3Q07.

Indeed, DSG cut its outlook on Thursday and outlined a few worrisome points as same store sales fell across the board. Sir John Collins, group chairman of DSG, said in a statement:

Sales in UK Computing were very disappointing with lower demand for laptops in the pre Christmas gifting period, but good demand for games consoles and digital photo frames. Driven by promotions, sales of laptops improved in the post Christmas period.

The evidence of a technology slowdown in the U.S. is more mixed, but that will be clarified once earnings reports start in earnest in a few days. In any case, tech giants are likely to get dinged if Europe demand slows. Perhaps Asia can pick up the slack, but that region's demand would have to spike to offset a slowing U.S. and European economies.

Topics: Intel, Enterprise Software, Hardware

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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