Intel Falls 6.3% as Analyst Says Sales Growth May Lag
Santa Clara, California, Sept. 5 (Bloomberg) -- Intel Corp. shares fell 6.3 percent after an analyst said sales growth at the world's biggest computer-chip maker could fall short of forecasts.
Intel fell 4.69 to 69.25. More than 58 million shares changed hands, making it the most actively traded stock in U.S. markets. The shares have gained 68 percent this year.
Demand has slowed, and the recovery that usually comes with the back-to-school season hasn't materialized yet, U.S. Bancorp Piper Jaffray analyst Ashok Kumar wrote in a report. Pricing pressures ``could turn malignant'' as the supply of chips for personal computers increases, and Intel's costs will rise as it starts volume production of the powerful Pentium 4, he said.
``Due to continued unexpected demand weakness, we now expect sequential unit growth in the mid-single digits, which is well below consensus expectations,'' said Kumar, who cut his rating on Intel shares to ``buy'' from ``strong buy.''
The sluggish demand also will hurt sales at PC makers this quarter, Kumar wrote.
Intel couldn't be reached immediately to comment. In July, the Santa Clara, California-based company said sales in the current period would rise from the second quarter's, Intel's most positive outlook for the third quarter in more than five years.
Gross Margins
After recalling its 1.13-gigahertz Pentium III processor last week, Intel needs to move the Pentium 4 into volume production quickly so it can compete in the hottest segment of the market in the first half of next year, Kumar said. He expects that push to hurt Intel's gross margins, the percentage of sales left after subtracting manufacturing costs.
Kumar predicted that the stock will fall back into the $60 range.
Investors have reason to take note of Kumar's forecasts. On Aug. 2, he cut his rating on Dell Computer Corp. to ``buy'' from ``strong buy,'' saying the No. 1 direct seller of PCs might miss sales-growth forecasts. Dell shares fell 4.8 percent that day. The following week, the company reported second-quarter sales that trailed expectations.
In June 1999, Kumar accurately predicted that Compaq Computer Corp., the world's biggest PC maker, had too much inventory and would have to write down the value of the machines, leading to a loss in last year's second quarter. Analysts had expected the Houston-based company to report a profit. Compaq warned the week after that it would lose money in the quarter.
Intel in 1998
Kumar, an engineer by training who worked for Intel for three years after getting his MBA from the University of Pennsylvania's Wharton School of Business in 1991, has made contrary calls on Intel in the past.
In late August 1998, he said the chipmaker's third-quarter results could be higher than the forecasts of many of his counterparts. Kumar had talked to PC makers about demand and checked with dealers and distributors about sales and inventory.
In the following days, other analysts challenged his opinions, and Intel stock slipped as investors worried that strong sales of cheap PCs would hurt earnings.
Two weeks later, Intel said third-quarter sales would beat expectations, lifting the stock 7.4 percent the next day.
Kumar is in the minority this time as well. In the past four weeks, 19 analysts have raised their estimates for Intel's profit this quarter, while just two have reduced them, according to First Call/Thomson Financial.
The chipmaker is expected to earn 41 cents a share, the average analyst estimate in a First Call survey. Analysts expect sales of $9.07 billion, the average forecast of six polled by IBES International Inc.
Excluding acquisition-related costs, Intel earned a pre-split 55 cents a share in the year-ago quarter on sales of $7.33 billion.
Sep/05/2000 16:16 ET
For more stories from Bloomberg News, click here.
(C) Copyright 2000 Bloomberg L.P. |
