Intel Cuts Q3 Revenue Estimates as PC Demand Weakens

Intel officials are reducing their third-quarter revenue projections amid a softening in the consumer PC market, the latest blow to an increasingly shaking economy.

Intel executives announced Aug. 27 that they expected revenues for the quarter to come in at $11 billion, plus or minus $200 million. They had earlier estimated revenues at between $11 billion and $12 billion.

“Revenue is being affected by weaker than expected demand for consumer PCs in mature markets,” Intel said in a statement. “Inventories across the supply chain appear to be in-line with the company's revised expectations.”

Intel, which owns about 80 percent of the worldwide microprocessor market and is viewed as a bellwether in the IT industry, had seen tremendous financial numbers in the first two quarters of the year, buoying expectations for a strong recovery in the IT industry. In April, company executives announced that first-quarter revenues of $10.3 billion and a profit of $2.4 billion, thanks in large part to an aggressive rollout of products and the start of new corporate spending.

After a 2009 in which the global recession hit full force, the industry was beginning to come around, according to CEO Paul Otellini. “The industry is nearly fully recovered,” he told analysts and journalists at the time.

That momentum continued in the second quarter, when Intel posted $10.8 billion in revenues and a $2.9 profit, thanks to a strong combination of both consumer and corporate spending.

To a lesser extent, rival Advanced Micro Devices also saw strong first- and second-quarter numbers.

However, even before Intel made its announcement regarding the lowered expectations for the third quarter, some financial analysts already were predicting a setback. For example, JMP Securities analyst Alex Gauna in a research note Aug. 26 said back-to-school PC sales were not hitting expectations, while Stacy Ragson, an analyst with Bernstein Research, on Aug. 19 downgraded his estimates for both Intel and AMD due to “a significant July deceleration in notebook PC sales from the Taiwanese manufacturers, with a possibly significant sub-seasonal Q3 notebook PC environment.”

In a research note Aug. 27, Brian White, an analyst with Ticonderoga Securities, said Intel’s actions were not a shock.

“We are not surprised by Intel's negative pre-announcement, but the timing was fairly quick since the company just reported in mid-July,” White wrote. “With tech conferences coming up over the next couple of weeks, the tone could be more uncertain than expected.”

During a trip to the Computex show in June, White said he saw “much weaker than expected trends across the notebook computer, PC and consumer-related markets that has only gained momentum in recent weeks.”

He also pointed out that during their quarterly conference calls with analysts and journalists, executives from both Hewlett-Packard and Dell talked about a weakening consumer PC sales environment.

“We believe these data points continue to highlight an accelerating deterioration in consumer demand,” White wrote.

This comes as Intel continues its attempts to expand its reach beyond its core PC and server chip business. Intel on Aug. 19 announced plans to buy security software company McAfee for almost $7.7 billion. At the same time, Intel reportedly is on the verge of buying Infineon's mobile chip business for what could be as much as $1.9 billion.