Intel has drastically cut its fourth quarter revenue expectations by 14 per cent, blaming falling demand for its core PC processor and chipset components, along with expectations of a bad retail Christmas brought on by the economic slowdown.
The cut, which was far worse than many had expected, sent tech sector shares into freefall in late trading, with Intel plunging seven per cent along with Microsoft falling by two per cent.
Intel reduced its fourth-quarter revenue forecast to $9 billion (6.08 billion), with a $300 million (202 million) margin of error. This is in stark contrast to last month's estimate of $10.1 billion (6.82 billion) to $10.9 billion (7.36 billion), and average analyst expectations of $10.3 billion (6.95 billion).
"For revenue to be that far down sequentially, it means consumers have basically shut down for the holidays," said Charter Equity Research analyst John Dryden. Intel's third-quarter revenue was $10.2 billion (6.89 billion).
"It's so far below what they had expected ... The company had outlined weakness in enterprise but not the consumer yet," Dryden said.
The news is in stark contrast to its third quarter results, where Intel posted a 12 per cent rise in profits.
The impact of Intel's warning was exacerbated by weak outlooks rival chip makers Applied Materials and National Semiconductor yesterday evening.
"The last six weeks of turmoil in the financial markets is unprecedented. The weakening global economy will have significant impact on all of Applied's businesses," chief executive Mike Splinter said on a conference call.
Investors had been expecting Intel to cut its outlook since the company had scheduled a mid-quarter update on 4 December, its first in three years.
The early warning on Wednesday was worse than many had feared, fuelling worries that the slump in global technology spending was sharper than anticipated and could last longer than previously predicted.
Taunya Sell, analyst at Wells Fargo division Ragen MacKenzie, said analysts are going to have to adjust their 2009 forecasts "to reflect the new reality."
"Obviously this has implications for Microsoft in the PC market," Sell said. "Their business tracks PC shipments as well. I think this is affecting everyone, and those that say it's not will have to come to the altar in January."
Intel said the PC industry supply chain was aggressively reducing component inventories. It also sharply lowered its gross profit margin outlook to 55 per cent from 59 per cent and said it would cut spending.
