Intel Lowers Q3 Forecast, Cites Slow PC Sales, Economic Woes

Intel, like other players in the PC space, is being hit by continued weak PC sales as consumers look to smartphones and tablets. And the uncertain economy isn't helping.

Intel executives are lowering their financial forecast for the third quarter, citing global economic conditions that are impacting the supply chain, PC sales and slowing demand in emerging markets.

In a brief note Sept. 7, the officials said that third-quarter revenue will come in at about $13.2 billion, a drop from the $13.8 billion to $14.8 billion they had forecast earlier.

Intel's lowered forecast is the latest indication of growing trouble in parts of the IT industry, following recent disappointing second-quarter financial numbers from such major tech players such as Dell and Hewlett-Packard. It also comes days after the CEO of Intel rival ARM Holdings told the Financial Times that the slowing mobile device sales the company saw in the first half of the year could continue through the rest of 2012.

CEO Warren East also said that, based on ARM's projections, the mobile chip maker was scaling back its employee recruitment efforts.

Chip maker Advanced Micro Devices also is feeling the impact of the struggling PC market, most recently with UBS analyst Steven Eliscu downgrading his stock rating for the company. Among the reasons Eliscu cited in a note to investors was a "shrinking PC client serviceable market based on the growth of tablets and Ultrabooks," as well as increasing competition from Intel in the server processor business and Intel's upcoming "Haswell" notebook processors.

"This wasn't entirely unexpected," Roger Kay, principal analyst at Endpoint Technologies Associates, told eWEEK, noting the "lackluster" quarterly reports from Dell and HP and the growing global economic concerns. In addition, Intel in July lowered its forecast for the entire year, pointing again to PC sales and a slowdown in sales in emerging markets.

A trend that's impacting Intel is the same one facing HP, Dell and others in the PC industry-the rise of mobile computing devices, particularly smartphones and tablets. For Intel, the problem is that most of these devices run on chips designed and licensed by ARM and made by the likes of Qualcomm, Samsung Electronics, Texas Instruments and Nvidia. Intel, the top vendor of PC and server chips, is looking to make inroads into the mobile device space, with its newest Core and Atom processors, but for right now, ARM is the dominant platform.

"Intel not getting its share of the high mobility business is one factor, and the macroeconomics [environment] is another factor," Kay said.

The release next month of the Windows 8 operating system by Microsoft also could be playing a role in the slowdown of PC sales, though Kay questioned how significant a role that could be. Consumers may be waiting on it, but enterprises rarely adopt new operating systems, and many are still busy bringing Windows 7 into their environments.

The weakness in the enterprise PC market has more to do with macroeconomics than anything else, he said. Over the past several quarters, as PC sales have slowed, most IT vendors have pointed to the consumer segment as the primarily culprit, adding that corporate sales were doing relatively well. That appears to be changing.

In a Sept. 7 note, Ross Seymore, an analyst with Deustche Bank Securities, said the lowered forecast was not surprising, but the amount of the reduction was. However, the problems are more related to the global economic environment rather than being specific to Intel, Seymore said, adding that the company is still in a strong position.

"We continue to believe [Intel] can outgrow its competition in [microprocessors] while delivering strong growth in [its Data Center Group] and in its non-PC areas (mobility, NAND, embedded, etc.)," he wrote.

Intel officials said the company's data center business was performing as expected. Seymore said he expects Intel to return to its usual growth patterns next year.

Intel's reduced forecast comes just days before the start of the Intel Developer Forum, the company's major annual conference in San Francisco. It also comes during what normally is a strong sales time, as OEMs and consumers gear up for the holiday shopping season. Kay said that traditionally, the third quarter has always been strongest, followed by a good fourth quarter.

Mobile device makers, including Nokia, Motorola and Samsung, already are rolling out new smartphones they hope will be hot sellers during the holiday season, and Apple is readying the release of the iPhone 5 Sept. 12. Intel also is hoping to see Ultrabook sales take off.

However, given Intel's influence and reach in the PC market, the lowering of its revenue forecast could indicate similar problems for other companies, from PC vendors to makers of other components, such as drives and memory, Kay said.

"I don't see the trends changing a lot between now and December," he said, adding that that "will affect pretty much everybody in the supply and distribution chain."

It also could bode ill for the launch of Windows 8, which Microsoft has optimized for tablets in hopes of gaining a foothold in a market dominated by Google's Android and Apple's iOS operating systems, Kay said.