Intel’s glum third quarter forecast last Thursday hit IT stocks on Friday as investors pondered the announcement’s effect on the chip giant’s future plans and its implications for other firms in the PC ecosystem.
In a research note on Friday, Merrill Lynch said Intel’s reduction of its revenue range – to $8.3 billion to $8.6 billion from $8.6 billion to $9.2 billion – was greater than it had expected. It said the forecast showed the back-end loading typical of the third quarter was not going to happen this year.
Merrill Lynch also noted that Intel had no intention of slowing down its transition to 65 nanometer production, raising the possibility of over-capacity on older geometries. Merrill Lynch said that while the company could shut down fabs, it would more likely use them to target other, non-CPU markets, pointing to a grim time for graphics, chipset and flash vendors next year.
The gloomy forecast from Intel, which also lowered its gross margin outlook for the year, was echoed by other chip vendors, with Altera lowering its outlook on Thursday while Cypress Semiconductor cut its forecasts on Friday.
PC giants Dell and Hewlett Packard both saw Thursday’s after hours stock price markdowns confirmed during regular trading on Friday. Dell, which relies on Intel as its only CPU supplier, was down $0.26 to $35.25, while HP, which also sources chips from Intel as well as other vendors, was down $0.31 to $17.7. Gateway was down $0.14 to $4.32.
Investors clearly didn’t see Intel’s pain as arch rival Advanced Micro Devices gain, and pulled the x86 alternative supplier down $0.77 to $10.9.