Intel, Yahoo disappoint, markets seen driven lower

Duncan Martell

SAN FRANCISCO: Weak results from technology bellwethers Intel Corp. and Yahoo Inc. will likely mean bad news for global stock markets, raising concerns that tech spending in 2006 could be less than expected.

Intel, the world's largest chipmaker, and from Internet media giant Yahoo posted results that lagged expectations, sending shares of both sharply lower and hitting stocks across the sector.

"It looks like the tech rally has had a little hiccup and it will take markets lower tomorrow across the world," said Stephen Massocca, Co-CEO of San Francisco-based investment bank Pacific Growth Equities.

Shares of other marquee tech names also fell. Google Inc. shares fell 3.4 percent, Apple Computer Inc. fell nearly 2 percent, Dell Inc. declined 3.6 percent and eBay Inc. declined 3.1 percent, all in after-hours trade.

The first impact outside the U.S. was seen in Asia, where shares of major chip-related stocks fell across the board on Wednesday as investors fretted about the disappointing results from Intel.

According to Reuters Estimates, the first 49 companies of the S&P500 that have reported fourth-quarter results have so far collectively missed average Wall Street revenue estimates by 0.25 percent.

Intel suffered from weak demand for processors used in desktop computers and weak sales in the Americas, and Yahoo's revenue was just below average expectations, with higher operating costs crimping profit growth.

"The worry with Intel is many investors are expecting higher corporate spending to offset potential weakness in consumer spending for GDP growth this year," said Steve Neimeth, portfolio manager for AUG SunAmerica Asset Management in Jersey City, New Jersey.

"If Intel's miss is due to lower corporate spending, this could bode very poorly for economic growth in 2006," he said.

International Business Machines Corp, the world's largest computer maker and computer services provider, for its part, posted a quarterly profit that rose a higher-than-expected 13 percent, aided by its consulting business and sales of large computers to businesses.

"In light of Intel's very disappointing earnings, it makes IBM's numbers look that much better and makes it look like a possible safe haven for tech investors," Neimeth said.

Even so, IBM shares fell 1.3 percent in extended trade amid investor pessimism as Intel's and Yahoo's misses overshadowed an otherwise strong earnings report from IBM.

Including Tuesday's after-hours drop, shares of Intel are up about 2.5 percent in the last 12 months. On the same basis, IBM stock is down about 13 percent and shares of Yahoo are little changed over the last 12 months.

Several financial analysts said the Yahoo's earnings shortfall -- it missed the average estimate by a penny -- reflected flat growth in gross margins and higher than expected operating expenses. Chief Financial Officer Susan Decker said expenses were up as the company invested in high-growth areas.

Yahoo stock has also been weighed down by competitive concerns over the faster growth of rival Google and the imminent loss of key advertising customer Microsoft, which is gearing up to compete more actively itself in online ads by the middle of this year.

And in Intel's case, due partly to the earnings miss, Chief Executive Paul Otellini said the company would stop issuing mid-quarter updates. Intel missed its own forecast it gave in mid-November, reporting revenue $10.2 billion, compared with their forecast for $10.4 billion to $10.6 billion.

"We're starting out in a bit more of a hole for '06 than we first had thought. We hope to capitalize on any revenue opportunity and a lot will depend on the product," Intel Chief Executive Paul Otellini told analysts on a conference call.

(Addition reporting by Eric Auchard, Philipp Gollnerand Scott Hillis in San Francisco, Jennifer Coogan in New York and Ian Chua in Hong Kong).