Intel Slashes Sales Outlook, Citing Weak Global Demand

Intel whacked more than $1 billion from its fourth-quarter revenue forecast and ratcheted down its profit expectations because a clampdown on spending is reducing demand for its chips.

Intel's headquarters in Santa Clara, California.
Paul Sakuma
Intel's headquarters in Santa Clara, California.

Intel's announcement Wednesday illuminates how the economic crisis is rippling across industries. As consumers and businesses cut back on buying all kinds of things, their reduced purchases of PCs are harming computer makers and their suppliers. Intel is the world's largest supplier of microprocessors, the brains of personal computers, with roughly 80 percent of the global market.

The news, which came after the bell, sent Intel shares down sharply in after-hours trading. For a real-time, after-hours Intel stock quote, click here.

Intel said the PC industry supply chain was aggressively reducing component inventories.

The company, seen as a technology bellwether, did not single out the weak global economy, but investors are concerned the world is on the verge of recession.

"It means consumer's have basically shut down for the holidays," said Charter Equity Research analyst John Dryden. "It's so far below what they had expected....The company had outlined weakness in enterprise but not the consumer yet."

Intel forecast fourth-quarter revenue of $9 billion, plus or minus $300 million. That compares with its previous forecast of $10.1 billion to $10.9 billion, or 14 percent below the $10.5 billion midpoint.

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The company also sharply dropped 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.

The company warned two weeks ago that the credit crisis could hurt demand for its chips, and lead to the insolvency of key suppliers that could result in product delays.

Intel, which makes 80 percent of microprocessors that power personal computers, gave no new financial forecasts, saying it would publish a mid-quarter update on Dec. 4.

"Current uncertainty in global economic conditions poses a risk to the overall economy as consumers and businesses may defer purchases in response to tighter credit and negative financial news, which could negatively affect product demand and other related matters," Intel said in the third-quarter filing. These comments were not in its second-quarter filing.

"There could be a number of follow-on effects from the credit crisis on Intel's business, including insolvency of key suppliers resulting in product delays," it said.

Other risks include the inability of customers to obtain credit to finance purchases of Intel products, as well as Intel possibly facing its own difficulties in obtaining short-term financing from the issuance of commercial paper.

When Intel reported third-quarter results in mid-October, it provided investors with wider-than-usual forecast ranges for the fourth quarter due to uncertainties about the global economy.

The technology sector in general is bracing for a prolonged slump. Cisco Systems, the world's largest maker of computer networking gear, offered a sign of the trouble last week when it reported that orders fell off abruptly in October.

As the first major technology company to report results including October, Cisco's grim forecast suggested that other tech companies will likely have to absorb major damage to their sales as well.

—AP and Reuters contributed to this story.