As posted by: Wall Street JournalIntel Corp. issued a second warning about deteriorating business conditions, signaling further weakness in the computer sector.
Intel sets the tone for the sector with a warning of lower earnings before the bell, based on weaker global demand for computers. Also, investors are rocked by Satyam Computer Services and its potential accounting problems. Rex Crum reports. (Jan. 7)
Intel said Wednesday it now expects to report $8.2 billion in revenue for the fourth quarter -- a 20% drop from the third period -- after issuing a forecast in November that pointed to a decline of about 12%. Fourth-quarter results are traditionally the strongest for the semiconductor industry, and Intel had projected in mid-October that sales would rise 3% from the third period.
Intel's latest warning, which caused its stock to drop about 6% Wednesday, indicates that demand for computers that use the companies chips has faded quickly.
That could cast a pall over announcements expected from several high-tech companies unveiling a slew of new gadgets -- along with the chips that power them -- at the Consumer Electronics Show in Las Vegas.
Rival Advanced Micro Devices Inc., for example, Thursday is announcing a microprocessor for desktop computers called Phenom II that exploits a new manufacturing process to operate faster, which should improve AMD's standing among gaming enthusiasts that want higher performance. Phenom II is part of a combination of chips, code-named Dragon, that includes graphics chips to help with chores such as encoding high-definition content.
Another hot topic at CES is solid-state drives, devices sold by Intel and others that use chips called flash memory, rather than disk drives, to store data. SanDisk Corp. on Thursday is unveiling new SSDs that it says store and retrieve data at extremely high speeds -- more than twice as fast as comparable products shipped in 2008. The devices will be available in mid-2009, starting at $149 for a model that stores 60 gigabytes of data, the company said.
Intel, meanwhile, is planning to use CES to announce its progress in getting partners, like Toshiba Corp. and Samsung Corp., to adopt new Intel chips for consumer-electronics products -- as well as companies adopting the idea of software "widgets," software that Yahoo Inc. has been developing, with Intel's help, to make it easier to call up Web content on TV sets using ordinary remote controls. Comcast Corp. will demonstrate the use of widgets with the cable company's program guide, Intel said.
Intel said Wednesday it was suffering both from a decline in "end demand" -- activity by the consumers and companies that buy computers that use its chips -- as well as actions by computer makers to reduce their inventories.
The company also said that its gross profit margins will be at the bottom of the lowered estimate it issued in November of 55%, plus or minus a couple of percentage points. In mid-October, the company had said the range would center around 59%. An Intel spokeswoman declined to give additional details.
Joanne Feeney, an analyst at FTN Midwest Securities Corp., said the numbers point to grim quarters ahead. "I really don't see the market reaching the bottom until the second or third quarter," she said.
One bright spot for the Santa Clara, Calif., company is Atom, a new chip that has helped fuel the rapid rise of low-priced laptops dubbed netbooks. But the growth in that new niche has not offset declines in bigger product categories, Ms. Feeney said. Atom also is priced lower than other Intel chips for laptops, and comes with lower gross profit margins.
Intel Wednesday said it plans a nearly $950 million write-down on the value of its stake in Clearwire Corp., a company delivering WiMax networking services whose shares are off about 60% in the last year.
Intel also said spending on acquisitions and research and development in the fourth quarter was about $2.6 billion, below its earlier estimate of $2.8 billion. The chip maker added that it will also record $250 million in restructuring charges and write-downs for the period.
