Intel's Shock Warning Sound Alarm for Tech Sector - Tech shares hammered
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Intel said the PC industry supply chain was aggressively reducing component inventories. The company makes about 80 percent of the world's microprocessors, which power PCs.
It also sharply lowered its gross profit margin outlook to 55 percent, plus or minus a couple of percentage points, from 59 percent, plus or minus a couple of percentage points, and said it would cut spending.
Other stocks that scraped multiyear lows on Wednesday include Dell Inc, which fell 4 percent, and Hewlett-Packard Co, which fell 2 percent. Both PC makers are scheduled to report results later this month.
Shares of Cisco Systems Inc, which holds its shareholder meeting on Thursday, dropped 3 percent.
John Menzies, portfolio manager at Pacific Growth Equities in San Francisco, said Intel's miss "is more evidence to the severity of the consumer slowdown."
"You could make the point they are looking to take advantage of an oversold market to become more conservative with their guidance. But then, they've lowered the bar a lot. You're seeing futures reacting to this already," he said.
Last week, Intel warned that the credit crisis could hurt demand for its chips and lead to the insolvency of key suppliers, according to its 10-Q quarterly report to the U.S. Securities and Exchange Commission.
American Technology Research analyst Doug Freedman said Intel's warning raised questions over how far along into the downturn the industry is, and how much of the bad news is now out of the way.
"The normal pattern is for Intel to be down 10 to 12 percent in the March quarter and now we are seeing that type of behavior in the December quarter," he said. "So the real question that investors have ... is what is March going to look like off of this new number."
Peter Jankovskis, director of research at Oakbrook Investments LLC in Lisle, Illinois, expected the news to push stocks down between 4 and 10 percent, but noted that Intel's long-term outlook was solid.
"In all likelihood, this is a bump in the road and a good buying opportunity," he said.
(Reporting by Tiffany Wu, Sinead Carew, Deepa Seetharaman, Kristina Cooke and Ritsuko Ando in New York, Peter Henderson in San Francisco, and Gina Keating and Lisa Baertlein in Los Angeles; Editing by Phil Berlowitz)
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