Intel spooks market by lowering robust forecast, sees PC sales softening

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Analysts, on average, had expected the company to announce profit of $0.43 per share on revenue of $10.25 billion.

The company also offered a robust guidance, saying its gross profit margin will be about 67 percent this year. The company also said its third quarter sales will rise to $11.6 billion, plus or minus $400 million. Analysts polled by Bloomberg, on average, had estimated $10.9 billion.

At that time the analysts said Intel's results and guidance had allayed fears of economic slowdown and had suggested that corporate IT spending is on the rise. Last year, companies, hit by economic slowdown, scrimped on their IT spending and delayed orders.

However, on Friday, Intel scaled down its forecast, disappointing the market.

"Revenue is being affected by weaker than expected demand for consumer PCs in mature markets," including the US and Europe, the company said in a statement.

The announcement forced the market regulator to halt trading of the company's shares for a brief period of time. When trading resumed, the shares plunged to a low of $17.81 triggering a single-stock circuit breaker but quickly turned positive thereafter as the market shrugged off the news.

Analysts said investors realized Intel's earlier rosy guidance did not paint a true picture of the financial health of either companies or the economy.

While industry research group Gartner Inc. had recently slashed its forecast for worldwide corporate IT spending, IDC last month said PC shipments are expected to grow at slower rates in the second half as consumer spending slows down. PC shipments grew at fast rates in the first two quarters compared to the same quarters last year as economies rebounded from the recession.

Technology giant Cisco Systems Inc. had sounded a cautious note two weeks ago when it said it was seeing "mixed signals" and an "unusual uncertainty" during a forecast for the rest of its fiscal year.

Analysts have also trimmed their estimates for Intel in recent weeks as PC makers such as Dell Inc. and Hewlett-Packard Co. in the US have raised red flags about the "back-to-school" season, normally a robust period for sales.

In a research note, UBS analyst Maynard Um had warned, Thursday, that though "traffic has been good, the rate of sales, which was generally described as steady, has not been as robust as previous back-to-school seasons."

"This (Intel's announcement) has not caught investors by surprise," said Rodman & Renshaw analyst Ashok Kumar. "There were enough data points heading in this direction that demand trends were going below seasonality."

Agrees Kaufman Bros. analyst Shaw Wu. According to Wu, Intel's initial outlook had appeared "too aggressive," given the signs that the PC market was showing signs of softening.

Analysts said Intel's latest guidance suggests that its future earnings will be weighed down by weak consumer sentiments in Europe, where the countries are still struggling to recover from debt crisis.

Fears that the US economy is growing at a sluggish pace is "also doing pretty horrible things to consumer confidence and consumer demand for high-ticket items" such as computers, Rob Enderle, principal analyst at Enderle Group, said. The US economy grew at only 1.6 percent in the second quarter.

Intel, analysts said, will also be affected as more and more companies change the way they use computers.

With the companies increasingly turning to products and services that will help them use data space more efficiently to hold the billions of emails, customer orders and other vital information needed to run their businesses, the data center products and services business is witnessing strong growth and has caught the attention of PC makers like Dell and HP, which are looking to augment its core PC selling business.

And, to tap into this high-margin market, the PC makers are increasingly focusing on cloud computing and virtualization technology that enable users to move data away from desktop PCs and local servers to remote locations and access data and software from a variety of places and devices using the Internet.

And, as "cloud computing" doesn't require PCs to be powerful, analysts see the development harming Intel's sales in the long run as its microprocessor powers over 80 percent of the world's PCs.

Analysts also see the surge in sale of smartphones, and tablet computers like the iPad, harming the business of Intel, which has a negligible presence in the handheld devices market.

Shares of the Santa Clara, California-based company closed up 1.05 percent at $18.37 on Friday.