Intel cuts revenue forecast, shares fall

Franklin Paul

NEW YORK: Intel Corp. cut its revenue forecast on Friday amid weaker-than-expected demand and a loss of market share to rival chip maker Advanced Micro Devices Inc.

AMD, a much smaller company that has traditionally trailed Intel, has recently pressured the chip giant with technological gains that have given it an edge in performance and power use, especially in the market for servers that run businesses.

Shares of Intel, the world's biggest semiconductor maker, fell as much as 3 percent to a 17-month low before mostly recovering. It was the biggest drag on both the S&P 500 index and the Nasdaq.

AMD shares rose initially then fell nearly 4 percent on fears that it, too, would be hit by weak demand.

The technology bellwether's warning confirmed concerns voiced in recent weeks by analysts, some of whom lowered profit forecasts for Intel because of tougher competition.

"This may say more about Intel's competitive position against AMD than it does about some broad-based slowdown in the technology arena," said Rick Meckler, president of LibertyView Capital Management.

ThinkEquity analyst Eric Ross expects the market share losses mark the start of a long-term struggle for Intel.

"Next quarter is going to be just as difficult (and) market share losses are going to continue," said Ross, who put a "sell" rating on Intel shares two weeks ago. "AMD is gaining share on a number of fronts -- in servers, where they've made the most gains to date, but they are also gaining in desktops and laptops."

Intel forecast revenue of $8.7 billion to $9.1 billion in the first quarter, down from a previous forecast of $9.1 billion to $9.7 billion.

It would be the second straight quarter of disappointing revenue after Intel's fourth-quarter number of $10.2 billion fell short of Wall Street expectations.

Santa Clara, California-based Intel also expects gross margin to be hurt by the lower-than-expected revenue, but expenses would be lower than expected.

The warning comes ahead of Intel's big developer forum next week at which the Santa Clara, California-based company will show off upcoming products and in particular highlight its new server chips.

Analysts said it was widely known Intel was having inventory problems and losing market share to AMD.

"It's not a surprise at all ... we are picking up end- demand softness since early January and inventory build and I think this is consistent with that," said RBC Capital Markets analyst Apjit Walia. "Intel's in troubled waters for a couple of quarters."

Intel shares touched a low of $19.86 just after the start of trading on the Nasdaq stock market and closed down 17 cents, or 0.8 percent, at $20.32. AMD shares initially jumped, but closed down 4.4 percent at $39.51.

"Most people are used to the old story of AMD and Intel where they were tied together and the fate of Intel was the fate of AMD," said JoAnne Feeney, an analyst with Punk Ziegel & Co., explaining why AMD shares were down.

"But the story has changed fundamentally over the past couple years," Feeney said.

Intel's slumping performance has given its shares a much lower valuation than AMD's. Intel stock trades at 17 times expected 2006 profit, while AMD trades at nearly 27 times.

Michael Masdea, a Credit Suisse analyst in San Francisco, said the impact on Intel stock would be limited because low expectations were already built into expectations.

He said Intel shares could get a lift in coming months from a raft of new products and the launch of Microsoft Corp.'s new Windows Vista operating system.

(Additional reporting by Robert MacMillan and Sinead Carew in New York and Scott Hillis in San Francisco)