Focus Shifts to 4th Quarter for Intel, AMD
dailynews.yahoo.com
By Duncan Martell
SAN FRANCISCO (Reuters) - The ``perfect storm'' that sank earnings for Compaq Computer Corp. (NYSE:CPQ - news) in the past quarter will hit chipmakers Intel Corp. (Nasdaq:INTC - news) and Advanced Micro Devices Inc. (NYSE:AMD - news) with a lag, analysts said on Tuesday.
For Intel and AMD, which sell more than 90 percent of the microprocessors that power PCs, the bruising combination of forces highlighted by Compaq are likely to hit in the fourth quarter, typically the industry's strongest, analysts said.
``The question isn't is Intel going to lower numbers, it's by how much,'' said Lehman Brothers analyst Dan Niles. ``And that's for the fourth quarter, not the third.''
Compaq, the No. 2 PC maker, warned on Monday that a range of negative factors converged in September, including the disruption caused by its own merger plans and the chaos in air transportation that followed the Sept. 11 attacks on New York and Washington.
CEO Michael Cappellas likened the uniquely damaging combination to ``a perfect storm'' and Compaq blamed the result for more than $1 billion in lost sales and a projected loss for the third quarter.
Intel, the world's largest chipmaker, is not likely to issue its own sales warning having already said on Sept. 6 that revenue for its third quarter will be at the lower end of a range set in July, analysts said.
AMD, for its part, has already warned of an operating loss due to weak sales and bruising price competition with Intel, its far-larger rival.
That shifts the risk of a shortfall to the current quarter, analyst said.
``Intel's quarter was pretty much in the bag,'' said Prudential Securities analyst Hans Mosesmann. ``The issue now is the fourth quarter.
Analysts on average expect Intel to report third-quarter sales of $6.41 billion and per-share profits of 10 cents, according to First Call/Thomson Financial. AMD's sales are pegged at $833.3 million and the company is forecast to report a loss of 10 cents per share.
TROUBLE IN THE SECOND HALF
The second half of the year has traditionally been stronger than the first half in the 20-year history of the PC, buoyed by back-to-school spending and the holiday shopping season that comes in November and December.
But after Compaq's warning, the risk has increased that Intel may have a harder time meeting forecasts for the second half, because Compaq will likely be curtailing the chips it will order for the fourth quarter, analysts said.
``Our belief was before Sept. 11, Intel would have a hard time making forecasts for the last half of the year anyway, because computing demand was less than expected,'' Niles said. After Compaq, ``this is more of the same with Intel and AMD.''
On top of Compaq's own problems stemming from its proposed acquisition by computer and printer maker Hewlett-Packard Co.(NYSE:HWP - news), the entire industry is suffering. While some had expected Microsoft Corp.'s Windows XP (news - web sites) operating system, launching this month, to help boost sales, consumer confidence is slipping.
That makes it less likely people will rush out and spend $1,000 or more on a new PC with enough speed and memory to run the new software.
Last month, top market research firm International Data Corp. again reduced its forecast for consumer PC shipments in 2001, to a decline of 9.6 percent, well below the 0.2 percent drop IDC had earlier suggested.
Intel, Santa Clara, California, said in its mid-quarter update that sales will be at the lower end of the $6.2 billion to $6.8 billion range it set in mid-July, when it reported third-quarter earnings.
Advanced Micro Devices, Sunnyvale, California, said on Aug. 29 that it expected an operating loss in the third quarter as revenue falls 15 percent from $985.3 million in the second period. Earlier, its range had been for a sequential sales decline of 10 percent to 15 percent and that it may report an operating loss.
``The top-tier PC (makers) are certainly going to see some weakness and that has to translate into some weakness for Intel and AMD,'' Mosesmann said.
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