Intel Corp. Thursday slashed its quarterly revenue and profit margin outlook due to weaker demand for both its computer microprocessors and communications chips, sending its shares down 7 percent.
The outlook, which was much weaker than Wall Street had expected, drove down shares of virtually the entire semiconductor industry and shook the overall stock market in after-hours trade.
The Santa Clara, California-based company said it now expects third-quarter revenue of $8.3 billion to $8.6 billion, down from a prior outlook of $8.6 billion to $9.2 billion. Gross profit margin is now expected to be about 58 percent, compared with an earlier target of around 60 percent.
The outlook suggests that the cycle of growth experienced by chip makers is slowing, if not ending outright, said Apjit Walia, an analyst with RBC Capital Markets.
“The cycle’s peaking, that’s pretty much it,” Walia said. “We’re not going to have growth like we had the rest of the year.”
Wall Street had been bracing for Intel to cut its revenue outlook, but the revised outlook was much lower than expected. Both Prudential Securities and J.P. Morgan earlier this week said they expected the company to cut the revenue outlook by $100 million.
In a scheduled update, Intel blamed weaker demand for chips and said customers were working off excess inventories of unsold components. Weaker-than-expected shipments of flash memory products, used in mobile phones, accounted for the unexpected weakness in its communications business.
Intel also said gross margins for the year would come in between 58 percent and 60 percent, compared to a prior target of around 60 percent.
Worse-than-expected
Many Wall Street analysts expected Intel to trim the mid-point of its revenue target by $100 million. Its new outlook, however, brings the mid-point of the range down by $450 million.
In recent notes, analysts had painted a pessimistic picture of the back-to-school shopping season. Moreover, Intel has had to contend with record levels of inventories of unsold and unfinished products, which evidence suggests touches the entire semiconductor supply chain.
Intel has also had to grapple with a string of product delays that have disrupted product planning by its customers.
There have been other signs that demand for semiconductors may be weakening. Earlier on Thursday, the U.S. Semiconductor Industry Association reported that economic uncertainty and swelling inventories had led sales growth to moderate in July.
Also, Altera Corp., a maker of programmable microchips, forecast quarterly revenue below Wall Street’s average estimate.
