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Intel Cuts Third-Quarter Sales Forecast Amid Weak Demand

Intel Cuts Third-Quarter Sales Forecast Citing Weak Demand
Intel Corp. in July scaled back its annual sales forecast as personal-computer demand fails to rebound among consumers in the U.S. and Europe. Photographer: Tony Avelar/Bloomberg

Intel Corp., the world’s largest semiconductor maker, slashed its third-quarter sales forecast, citing declining demand for personal computers from corporate customers in a weakening economy.

Sales will be $12.9 billion to $13.5 billion, down from a prior projection of $13.8 billion to $14.8 billion, the Santa Clara, California-based company said in a statement yesterday. Analysts on average had estimated sales of $14.2 billion, according to data compiled by Bloomberg.

PC makers are reducing orders for Intel’s chips at a time of the year when they normally buy more to build products for the holiday shopping season. Intel said demand for chips used in business machines and orders in emerging markets are lower than expected, compounding concern that the PC market may not grow this year as consumers flock to smartphones and tablets.

“It’s worse than everyone expected,” said Patrick Wang, a New York-based analyst for Evercore Partners Inc. “Their consumer PC business is getting whacked.”

Intel declined 3.6 percent to $24.19 at the close in New York yesterday, leaving the stock little changed this year. Advanced Micro Devices Inc., Intel’s largest rival in PC processors, fell 5.7 percent to $3.45. Nvidia Corp, which makes graphics chips used in computers, decreased 2.4 percent to $13.40.

Gross margin, the only measure of profit that Intel forecasts, will be 61 percent to 63 percent in the period, down from the prior forecast of 63 percent, plus or minus a “couple of percentage points.” Analysts had projected 63 percent, according to Bloomberg data. Gross margin is the percentage of sales left after deducting the cost of production.

Withdrawn Forecasts

Intel also withdrew all full-year forecasts and said it will provide updated projections with its third-quarter earnings report on Oct. 16.

The company in July scaled back its annual sales forecast as personal-computer demand fails to rebound among consumers in the U.S. and Europe. Revenue will rise 3 percent to 5 percent in 2012, Intel said that month, lower than an earlier projection for a gain at a percentage in the high single digits.

Yesterday’s announcement indicates that sales in the PC market are unlikely to grow this year, according to Daniel Berenbaum, an analyst at MKM Partners LLC. Intel’s customers may be cutting back on inventory ahead of the debut of Microsoft Corp.’s new Windows operating system, the first specifically designed to work on tablets with a touch-screen interface, he said.

‘Bear Case’

Intel also faces the prospect of losing customers as more consumers access the Internet via smartphones and tablets. Microsoft and Google Inc. are introducing tablets in a market already crowded with devices challenging Apple Inc.’s iPad.

Market researcher Gartner Inc. predicts the PC market will grow 2 percent to 372.3 million units in 2012. Next year the market will expand 12 percent to 415.5 million units.

“The problem is PC makers don’t know what to build,” said Berenbaum. “The bear case is that this indicates that people are not going to buy PCs, they’re buying tablets.”

Microsoft, with its entry in the tablet market, is for the first time creating versions of its Windows operating system that will work on chips using technology from companies other than Intel. That is causing PC makers to hold off on processor orders, unsure of which type of computer will catch on with consumers, according to Berenbaum.

Intel is also planning to spend less on new plants and equipment this year. Capital expenditures will be less than the low end of its prior 2012 forecast range of $12.1 billion to $12.9 billion.

-- With assistance from Lisa Rapaport in New York. Editors: Reed Stevenson, Stephen West

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