INTC drops over $10 in after-hours trading, after earnings warning is given.
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Wednesday March 4, 8:01 pm Eastern Time
FOCUS-Intel warns of disappointing first quarter
By Therese Poletti
SAN FRANCISCO, March 4 (Reuters) - Semiconductor giant Intel Corp. (INTC - news) stunned Wall Street on Wednesday with a warning that its first-quarter results would be disappointing due to surprisingly weak demand from personal computer makers.
''Weaker-than-anticipated demand ... is expected to cause revenue and net income levels to fall below Intel's expectations for the first quarter of 1998,'' the Santa Clara, Calif.-based company said
in a statement.
Intel also said that, in particular, orders from PC makers that are shipped within the quarter were below expectations.
The announcement sent technology stocks tumbling in after-hours trading as investors shed technology holdings.
Intel's stock fell $10.44 in after-hours trading, and was last quoted on the Instinet trading system at $76 a share, down from its closing price of $86.44 on Nasdaq. Trading in the stock had been halted pending the release of Intel's statement.
Wall Street analysts had been expecting Intel to report first-quarter earnings of 93 cents a share. In the fourth quarter of 1997, Intel reported net income of $1.7 billion, or 98 cents a share, which included 4 cents a share from a lower tax rate. Wall Street had been looking for 90 cents a share.
''What a disaster,'' said Ashok Kumar, an analyst with Piper Jaffray. ''There was a 2.5 million unit shortfall in CPU (central processing unit) shipments (in the quarter).'' Kumar pointed out that Intel
typically can maintain a flat first quarter, from the seasonally strong fourth quarter, which is why the news was hitting investors so hard.
Intel said it now expects its first-quarter revenue to be about 10 percent below fourth-quarter revenue of $6.5 billion and gross profit margins in the range of 53 percent of revenue ''plus or minus
a few points.'' In January, Intel said first quarter revenues were expected to be flat with fourth quarter.
''The company still believes that over the long-term, the gross margin percentage will be 50 percent plus or minus a few points,'' Intel said in its statement.
Intel said its first-quarter earnings shortfall was primarily due to the part of its business called OEM (original equipment manufacturer) turns, where PC makers order and receive their chip inventory
within one quarter.
Revenues from this business did not meet internal forecasts by the end of February, Intel said.
Some analysts said that the top PC makers who have switched to a build-to-order model to emulate the success of Dell Computer Corp. [Nasdaq:DELL - news] are tightening up on their inventory ordering and could also be having an impact on Intel.
Analysts said the biggest factor was demand, which seems to have weakened this quarter, because PC makers have been slashing prices at a furious pace in recent weeks and the popularity of the lower cost sub-$1,000 PC continues to grow.
''The bottom line is the sub-$1,000 growth continues to put pressure on Intel's pricing models,'' said Rob Chaplinsky, a Hambrecht & Quist analyst. ''The sub-$1,000 PC phenomenon is hurting the (average selling prices).''
Intel will be targeting this growing market in April with a lower-priced chip, called Celeron, Intel said Wednesday.
But one of its key competitors in this area, Advanced Micro Devices Inc. (AMD - news), also issued an earnings warning, saying Wednesday its first-quarter revenues would drop significantly from the fourth quarter and that its anticipated first-quarter loss would increase from the fourth quarter.
Analysts said PC makers, also aware of upcoming product announcements from Intel, are keeping inventories light.
Compaq Computer Corp.'s (CPQ - news) chief financial officer Earl Mason told a Merrill Lynch technology conference Tuesday that the computer pricing environment, especially in North America, was tougher than previously expected.
''People were forecasting about 15 percent growth (for the PC industry this year),'' Kumar said. ''Given that we are off to such a slow start, that may not transpire.''
Intel also said that its recently completed merger with Chips & Technologies Inc. will result in a one-time charge of $165 million, or 9 cents a share, in the first quarter.
Intel stock, which gained $1.125 to $86.44 in regular Nasdaq trading, was expected to be hard hit.
''This news is gonna whack Intel,'' said Don Hays, director of investment strategy at Wheat First Union.
Among technology stocks trading lower in after hours activity was International Business Machines Corp. [NYSE:IBM - news] which was at $99 after closing at $102.06, down 19 cents on the day, in regular trading. |
