Intel Corp. sliced its third quarter forecast yesterday as a lacklustre performance in the second half of August dispelled hopes of a back to school bonanza.
The chip giant said it saw weaker than expected performance in both its processor and communications business.
Yesterday’s announcement will be taken as a confirmation of fears that the chip market recovery is running out of steam, and appeared to hit the share prices of PC vendors that normally bank on a healthy back to school season to spice up the third quarter.
Intel expects third quarter revenue to come in between $8.3 billion and $8.6 billion, with gross margin of 58% plus or minus a couple of points. This is a substantial retreat from its previous forecast of $8.6 billion to $9.2 billion, with gross margin of 60%, plus or minus a couple of points.
The company also lowered its gross margin forecast for the year to 58% to 60% plus or minus a couple of points. It had previously set a forecast of 60%, plus or minus a couple of points.
CFO Andy Bryant said that the Intel Architecture Group was seeing lower than expected end demand and that customers were reducing inventories. The vendor’s communications business was weaker than expected mainly because of lower than expected growth in flash.
Speaking on a conference call he said the majority of the shortfall was in the consumer space. He added that the vendor’s scheduled price reduction in August hadn’t prompted the usual corresponding spike in sales. While the industry had been building up for a bumper back to school sales season, Bryant said, I don’t get the same sense of momentum building in September that I usually get.
However, while worries have been building all summer that chip inventories were expanding, and that the chip recovery has deflating, Bryant said I don’t see that inventory is a problem in the near term at least… I don’t see having to write off a lot of Prescott.
Intel’s shares moved down 7.6% in after hours trading. The figures appeared to have a ripple effect across the PC sector, at least, with Dell, HP and IBM all slipping somewhat after hours.