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Intel's gloomy forecast prompts slide in tech shares

A sell-off in tech stocks following Intel Corp's disappointing outlook pushed Asian shares lower yesterday, overpowering pockets of strength in some financial, consumer and industrial issues.

The technology bellwether set off a shockwave after the US market closed by reporting higher inventories and a worse-than-expected revenue and profit outlook.

The chip giant slashed its revenue and profit margin for the third quarter late Thursday, citing unexpectedly weak demand and prompting investors to send its shares tumbling in after-hours trading.

Intel's stock, which had closed at US$21.63, up US$0.20 in regular trading, fell as much as 7.6 percent, to US$19.98, after hours. Shares of its competitor Advanced Micro Devices also fell, to US$11.33, after hours.

Andy Bryant, Intel's chief financial officer, conceded in a conference call with analysts that Intel had been overly optimistic that demand for its chips would remain stable. "Pretty uniformly around the world demand is less than we expected," he said. "It appears that demand is less than we expected, it appears to be worldwide, and it appears to be mainly in the consumer division."

Analysts said Intel's revision suggests that investors should not expect to see the same level of growth in semiconductors that they saw in the first part of the year. "This shows that the semiconductor cycle has peaked," said Apjit Walia, analyst at RBC Capital Markets. "It's still growing, but at a lesser pace."

The company said revenues will range from US$8.3 billion to US$8.6 billion, a sharp reduction from the US$8.6 billion to US$9.2 billion it had forecast in July. Intel's third quarter ends Sept. 25.

Wall Street had been expecting Intel to revise its forecast downward somewhat, perhaps by US$100 million, but the new numbers put the midpoint of the range US$450 million below the company's previous projection.

For the full year, Intel said its gross profit margin could be lower than expected as well -- perhaps only 58 percent, instead of the previous forecast of 60 percent.

The latest bad news from Intel comes in a year in which the company has already stumbled in product development, missing deadlines.

The missteps have been serious enough for Craig Barrett, Intel's chief executive, to issue a memo to employees in July encouraging them to work harder to prevent future problems.

During the second quarter, Intel's inventory had grown by US$427 million, to US$3.5 billion. In July, the company predicted inventory levels would not grow significantly from that level. But Bryant told analysts Thursday that inventory in the current quarter would rise by US$100 million to US$150 million.

Profitability is also under pressure because the company's sales mix has been shifting, toward lower-margin products, like chips for inexpensive desktop computers.

Analysts said the forecast from the world's largest chip maker drove down shares of nearly the entire semiconductor industry in US after-hours trading, with Intel falling 7.5 percent from its Thursday close.

Nasdaq futures were down 1.1 percent at 6:00am GMT.

Rises in some utility and bank stocks in South Korea, mining stocks in Japan, chemicals in Taiwan and property companies in Hong Kong eased the impact from the tech trend.

Across Asia, tech giants began the sell-off. Taiwan Semiconductor Manufacturing Co (台積電) and United Microelectronics Corp (聯電), the world's top two contract chip makers, fell 3.3 percent and 4.4 percent respectively.

Their Singapore rival, Chartered Semiconductor Manufacturing Ltd (特許半導體), was flat after it affirmed a third-quarter profit forecast.

Also see story:
Intel's dismal outlook drags down local stocks
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