Intel cuts sales forecast citing weaker consumer PC market

Chip giant's shares move up following warning; analyst says news was baked in

SAN FRANCISCO (MarketWatch) -- Intel Corp. on Friday cut its sales forecast, citing a weaker-than-expected personal computer market in what appears to be an affirmation of rising fears of a softening consumer tech market.

Intel (INTC 17.96, -0.41, -2.23%) said it now expects sales of $11 billion, plus or minus $200 million, compared with a previous range of between $11.2 billion and $12 billion
"Revenue is being affected by weaker-than-expected demand for consumer PCs in mature markets," the company said in a statement.

Intel shares gained 1% to close at $18.37. Several analysts had been warning of a potential slowdown in PC sales, which had helped to push the stock down nearly 15% over the last month.

"We believe many investors have recently refrained from buying Intel shares in anticipation of an estimate cut and that this event now removes an overhang from the stock," wrote Quinn Bolton of Needham & Co. in a note to clients Friday.

The announcement also had an immediate impact on shares of another PC chip maker, Advanced Micro Devices (AMD 5.78, -0.30, -4.93%) . AMD shares declined following the warning, but rallied later to gain 3.6% to close at $6.08.

Some analysts have been warning for months of signs of a softening market for consumer PCs, although they have also pointed to strengthening corporate demand as companies replace aging fleets.

Meanwhile, Cisco Systems Inc. (CSCO 20.32, -0.49, -2.35%) recently also offered a sobering view of the broader corporate market when it cited mixed demand signals from business customers.

"Another tech giant fesses up to deteriorating demand trends," Ticonderoga analyst Brian White said in a note. "We are not surprised by Intel's negative pre-announcement but the timing was fairly quick since the company just reported in mid July."

Analyst Roger Kay of Endpoint Technologies Associates said the commercial PC market "seems to be okay for the moment," but noted, "consumer confidence is shot."
Kaufman Bros. analyst Shaw Wu said Intel's initial outlook had appeared "too aggressive," given the signs that the market was losing momentum.

"It's definitely a slowdown," he said in an interview.

However, he noted that, with the recent market declines, "some of the bad news has been priced in."

In a Thursday note, UBS analyst Maynard Um also wrote that the back-to-school season appeared to be "modest in nature."

"Our periodic checks over the past two weeks lead us to believe that while 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," Um wrote.

"Anecdotally we were told of a lot of 'window shopping" from consumers,'" Um added. "It is possible that due to the broader economic environment, consumers may still not be ready to make PC purchases and are waiting until the very last minute before they make such decisions or waiting for better 'deals' to materialize.