Intel Sales Take a Nosedive

In the most recent indication of the fragile state of the tech landscape, chipmaker Intel said fourth-quarter sales would fall short of its already reduced forecast.

Intel, the world's largest maker of computer chips, said on Jan. 7 that it would report sales of $8.2 billion, down 20% from the third quarter and 23% from a year earlier. Intel (INTC) blamed the decline on a collapse in demand for computers and a reduction in inventory among PC makers and other customers. "Revenue will be lower than the company's previous expectation… as a result of further weakness in end demand and inventory reductions by its customers in the global PC supply chain," Intel said in a statement. The company will report its full results on Jan. 15.

Clearwire Losses

Intel had already ratcheted down its forecast for the quarter on Nov. 12, saying it expected sales of $8.7 billion to $9.3 billion, from an earlier forecast of $10.1 billion to $10.9 billion. That would have constituted its worst-ever quarter-on-quarter decline. The Jan. 7 announcement means Intel will suffer its first full-year sales decline since 2006, when the company launched a wide-ranging restructuring and slashed thousands of jobs.

Intel's results also will suffer as a result of its investment in another tech company, Clearwire (CLWR). Intel said it expects to take a charge of $950 million to reflect the decline in value of Clearwire, a provider of high-speed wireless Internet access. Intel, Google (GOOG), and Sprint Nextel (S) are among the company's largest shareholders. Intel expects a loss of as much as $1.2 billion on equity investments vs. a prior expectation for a loss of $50 million. Gross margin, a key metric of profitability, will be 55% plus or minus a couple of points.

Intel's stock dropped on the news. By 12:20 p.m. ET, it was trading at 14.77, down nearly 4%.

Analysts Say Intel Is Still Strong

Analysts were quick to react. "We are not completely shocked," wrote Glen Yeung of Citi Investment Research. "Recent data points from notebook [manufacturers] and motherboard makers have been noticeably negative, substantiating such a shortfall."

Tim Luke, an analyst at Barclays Capital, said the weakness in PC and server sales appeared to be much broader than initially thought. "Management outlined weakness now seen not just in U.S. and Europe but in Latin America, Asia, and Japan," Luke wrote in a Jan. 7 note. "We believe desktops and servers to be especially weak. We believe weak demand is being compounded by inventory reduction across the channel."

Despite cratering sales, Intel is still relatively cash-rich and enjoys a large lead over the next biggest chipmaker, Advanced Micro Devices (AMD). Intel controls about 75% of the world's PC and server microprocessors. "We remain encouraged by Intel's competitive positioning and market-share outlook," Luke noted. "While we see few potential catalysts ahead of seasonally weak first half of the year, solid cash balance, dividend yield, and competitive position may offer some support."

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