Intel Corp, a bellwether for technology spending, warned on Friday that third-quarter revenue could fall short of its own estimates by more than $1 billion on weak demand for personal computers.
The company, which dominates the market for PC microprocessors, said it expects third-quarter revenue to be between $10.8 billion and $11.2 billion.
That compares with its previous forecast of $11.2 billion to $12.0 billion, and analysts' average expectations of $11.5 billion, according to Thomson Reuters I/B/E/S.
Despite the negative news, Intel shares were up 1.3 percent at $18.42 on the Nasdaq at midday, after falling earlier in the day to their lowest level since July 2009.
Even though the news is bad, the bad news is already in the valuation. Obviously, business isn't going great there, but the stock is so cheap this doesn't matter, said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.
I think people were relieved it was not worse, said Avian securities analyst Dunham Winoto.
Intel now sees gross margins in the period of 65 to 67 percent. It had previously forecast gross margins of 67 percent plus or minus a couple of points.
Intel said it cut its estimates due to slow demand from consumers for personal computers. U.S. economic growth was revised down on Friday to a 1.6 percent annual rate in the second quarter, pointing to an even softer performance in the third quarter.
The big question: Are consumers taking a pause here, is it going to lead to a more serious pullback as the year goes on? said James Ragan, senior equity analyst at Crowell Weedon.
While a still-shaky economic recovery may make families think twice about upgrading their computers, experts also say future growth in the microchip industry lies in smartphones and tablets, areas that Intel is far from dominating.
To bolster its stake in the mobile microchip market, Intel is likely to announce a deal this weekend to buy part or all of German chipmaker Infineon's wireless business, people familiar with the matter told Reuters.
Intel's stock has dropped 15 percent since mid-July, walloped by growing concerns that IT spending would not recover as quickly or strongly as expected, and by fears of a double-dip recession.
(Additional reporting by Jennifer Saba, Liana B. Baker and David Gaffen, editing by Matthew Lewis)