To ALL: Article...Chip growth still seen strong...
Chip demand not a problem outside Intel
PALO ALTO, Calif. - A softening in demand for computer chips in Europe hasn't spread to the rest of the world - yet.
Intel, the world's biggest computer-chip maker, warned Friday that its second-quarter profit and revenue would fall short of expectations, mostly due to weak European sales.
That statement rocked the stock market early as investors feared that it was a sign of a general personal computer slowdown. But Wall Street and PC analysts say the weakness is an Intel problem, and the worldwide PC market is still on track for 17% to 20% growth this year. "There has been no fundamental shift in demand," says Richard Zwetchkenbaum, PC industry analyst with International Data.
Indeed, Compaq Computer, the world's biggest PC maker, is seeing record sales. Dell Computer, the world's fastest-growing PC maker, also continues to see explosive growth.
Yet, any pothole hit by Intel rattles the entire technology sector. It is often first to spot changes in demand because it supplies chips for more than 80% of the PC market, which accounts for half the $140 billion in annual semiconductor sales.
While the situation in Europe may be murky, Intel spokesman Howard High says Intel sees no changes in demand elsewhere.
If demand does slow, it will become more evident in July and October, after PC makers report quarterly results. For Intel, Europe accounts for 25% to 30% of revenue.
Wall Street attributed Intel's expected 5% to 10% revenue drop to:
A rocky product transition. Intel recently introduced MMX chips, which boost a PC's multimedia performance. But it hasn't made enough to compensate for slowing sales of non-MMX chips. "It will take Intel a quarter to get back in sync," says Morgan Stanley's John Marren. Competition. Last year, Intel's share of the PC chip business swelled to almost 90%. This year, Cyrix and Advanced Micro Devices have low-cost, high-performance products. Linley Gwennap, analyst with Microprocessor Report, estimates Intel's share this year closer to 80%.
After dropping almost 15% Friday, Intel stock recovered to close at $151 1/2, down 7.5%. Microsoft dropped 1.5% to $124. IBM was off 1.4% to $86 1/2. Compaq rose 6 3/8 to $108 1/8. Dell was up 2 1/8 to $112 1/2.
Based on its new forecast, Intel's second-quarter earnings now are expected to be $1.76 a share, not $2.16, says earnings tracker First Call. Wall Street had expected flat to slightly higher revenue for the quarter.
By Julie Schmit, USA TODAY
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