Intel Corp warned that third-quarter revenue could fall short of its own estimates by more than $1 billion, reinforcing doubts about the strength of a technology sector recovery.
But shares in the industry bellwether, which dominates the market for PC microprocessors, gained 1.05 percent on Friday because investors had braced for bad news and were relieved the downward revision had not been worse.
Global stocks also rose after U.S. economic growth data topped estimates, as Federal Reserve Chairman Ben Bernanke said the central bank was ready to counter a softening recovery. A number of fellow tech heavyweights, including International Business Machines Corp, firmed.
Analysts said companies with exposure to a struggling PC industry -- fighting flagging demand from slowing growth in Europe, China and the United States and rising inventory -- may warn of revenue shortfalls in coming weeks.
Baird & Co analyst Tristan Gerra expects weakness to persist over several quarters before demand bounces back in the second half of 2011, but warned of a longer-term threat from tablets like Apple Inc's iPad replacing PCs.
That trend will continue in Q1 until we fix the inventory issues in the second, he said. But there's going to be more challenges for Intel next year, even if the market eventually picks up.
Other analysts pointed to a silver lining: Intel said resilient corporate demand was helping prop up average prices even though consumer demand in mature markets was weaker than expected.
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.
Intel shares closed 19 cents higher at $18.37 on Nasdaq, after falling to $17.81, their lowest level since July 2009. Shares in the world's largest chip maker have slid 15 percent since mid-July.
The stock was halted earlier on Friday as it appeared to trip a circuit breaker shortly after the company's revenue warning set off a flurry of trading.
BAD NEWS IS GOOD NEWS?
Intel now expects third-quarter revenue of $10.8 billion to $11.2 billion, down from a previous forecast of $11.2 billion to $12.0 billion and below analysts' average expectation of $11.5 billion, according to Thomson Reuters I/B/E/S.
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 -- near a record high for the company.
The big news is enterprise and server demand is holding up. And Intel still expects to grow (revenue) and gross margins also, said JMP Securities analyst Alex Gauna.
Longer term, analysts warned that Intel continues to face pressure as Apple's iPad and other tablet computers continue to chip away at demand for notebooks and desktop computers.
And while a still-shaky economic recovery may make families think twice about upgrading their computers, experts 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 Technologies AG's wireless business, people familiar with the matter told Reuters.
Analysts said such an acquisition was a step in the right direction but it would take time to produce results, and rivals based on ARM chip design -- which is said to be more power-efficient than Intel's offerings -- continue to grab market share.
(Additional reporting by Jennifer Saba, Liana Baker and David Gaffen in New York; Writing by Edwin Chan; Editing by Matthew Lewis, Gerald E. McCormick and Richard Chang)