'

Woe is tech: Intel issues warning

The chip king joins Apple, Motorola, and Gateway in warning of lower results in a softening economy

The final piece of the puzzle fell into place Thursday when chip giant Intel warned that its fourth-quarter sales will fall short of analysts' estimates mainly because several large customers cancelled significant orders.

Intel said it now expects sales to be flat or a percentage point or two above or below the $8.7 bn (£6.13bn) it recorded last quarter.

In its release, Intel said "recent large cancellations by customers worldwide" were responsible for the shortfall. Intel shares closed up 56 cents to $32.31 ahead of the warning before being halted in after-hours trading.

First Call consensus expects Intel to earn 42 cents a share in the quarter.

The warning should come as no surprise considering most major PC makers have already issued profit warnings detailing the demise of the consumer PC market this quarter. In fact, on Nov. 30 Lehman Brothers analyst Dan Niles predicted Intel would have difficulty meeting analysts' sales estimates.

At the time, Niles cut Intel from a "buy" rating to "outperform" and said the chipmaker would have to "stretch" to even meet its lowered guidance for the fourth quarter. "We believe that even though Intel gave conservative revenue growth guidance of 4 (percent) to 8 percent quarter over quarter, that this is certainly not in the bag and that Intel is being very aggressive to try and meet this guidance," he said in a research note.

Niles added that a 5 percent sequential sales decline was possible.

"We had originally hoped we could see a surge pre-Thanksgiving or great sell-through during Thanksgiving, but neither seems to have been achieved," he said. "This makes us cautious on the potential for processor cancellations later in the quarter or a large drop in pricing."

Sure enough, Intel's not going to hit the already watered-down sales targets.

Interestingly, Intel said capital spending for 2000 is expected to come in around $6.5bn, higher than the $6bn it previously estimated. Last quarter, it earned $2.9bn, or 41 cents a share, on sales of $8.7bn.

Its shares fell to a 52-week low of $31.25 earlier this week after peaking at $75.81 in March. Twenty-three of the 31 analysts following the stock maintain either a "buy" or "strong buy" recommendation. Analysts are forecasting a profit of $1.71 a share in fiscal 2001.

What do you think? Tell the Mailroom. And read what others have said.

To have your say online click on the TalkBack button and go to the ZDNet News forum.

See ZDII for US tech investor news.

See techTrader for more technology investment news, plus quotes and research.

See Chips Central for daily hardware news, including an interactive timeline of AMD and Intel's upcoming product launches.