SANTA CLARA, Calif. -- Technology stocks took a beating today after Intel Corp. announced lower-than-expected sales in the third quarter, leaving the analysts and industry managers trying to comprehend the factors behind the surprising shortfall in revenues at the world's largest chip maker.
Shares of Intel plunged 22% to $47 15/16 in heavy trading today after the Santa Clara, Calif.-based company announced on Thursday afternoon that its third-quarter revenues would be 3-to-5% higher than sales in the prior three-month period, primarily due to weak demand in Europe (see Sept. 21 story). Wall Street had been expecting Intel's sales to grow by twice that amount. The company did not elaborate on exactly what caused the problem in the quarter, which closes at the end of September.
Intel's announcement caused other semiconductor-related stocks to reel today, although some analysts believe the market overreacted to what is still a healthy semiconductor and PC industry.
"One little hiccup from Intel and the market goes down," observed analyst Tony Massimini, who tracks the microprocessor market at Semico Research Corp. in Phoenix. "But this doesn't mean that the PC and microprocessor businesses are going away."
But there could be some unpleasant seasonal factors at work for Intel--and the entire electronics industry. "The second half of 2000 for companies is relatively slower than the first half of 2000," Massimini said. "But the reason why the second half doesn't look so good is because the first half was so strong."
Still, Semico has not altered its forecast for microprocessor growth this year as a result of Intel's announcement. In total, the worldwide microprocessor business is expected to hit $34 billion in 2000, up 25% over revenues in 1999, according to Semico.
Intel's finger pointing at Europe could be telling, suggested analyst Bill McClean, president of IC Insights Inc. in Scottsdale, Ariz. "Today, banks around the world--including the U.S. Federal Reserve, Bank of Japan and Bank of England--all were buying Euros and bail out the weak currency, which is causing problems in Europe," he noted. "The Euro average last year was $1.04 last year and now it around $0.83... Intel's release on the revenue shortfall mentioned of Europe specifically, and that could point to an exchange rate problem."
McClean and other analysts said it was too early to conclude that Intel's shortfall of expected revenues had any relationship to an easing in PC demand as the industry approaches the all-important fourth-quarter shopping season. IC Insights continues to forecast a strong 2001 for semiconductor demand as long as the economy holds up and there are no unexpected crisis--such as oil shortages.
Earlier this week, a technology team of analysts at Bear, Stearns & Co. Inc. suggested that Intel and rival Advanced Micro Devices Inc. both had not been able to keep up with demand for low-end PC processors during the U.S. back-to-school build cycle earlier this summer. But shortages of Intel's Celeron and AMD Duron processors appear to be easing as momentum builds for the strong portion of the Christmas cycle in the months ahead, said chip analyst Charles Boucher of Bear Stearns during a conference call with investors (see Sept. 20 story).
With Intel and other chip makers ready, the major question in the fourth quarter is whether or not consumers are in the PC-gift giving mood. Intel's warning of lower-than-expected revenues in the third quarter has heightened some concerns about the prospects of a shortfall in the final three-month period of 2000.
But even before Intel's announcement, chip makers and some systems manufacturers were beginning to experience a bit of slowdown in growth rates. And the PC market continues to undergo some radical changes, which is putting pressure on margins for both OEMs and chip makers, say industry managers.
"The business is not as good as we thought it would be," said Alex Wu, director of the Integrated Product Division at Silicon Integrated Systems Corp., a supplier of chip sets in Hsinchu, Taiwan.
Others agree. "More and more end-users are buying lower-cost PCs," said Raymond Chen, vice president of Fremont, Calif.-based Asus Computer International, the U.S. subsidiary of Taiwan's Asustek Computer Inc. The company is one of the world's largest motherboard makers. "As a result, the ASPs average selling prices for a PC are dropping," Chen lamented
As far as demand for personal computers and PC-related products, OEMs have been troubled by the cyclical patterns this year. "It's been a strange year," Chen said. "The second quarter was exceptionally good, compared to previous second quarters. In the latter part of the second quarter, however, the demand seemed to stop dramatically. People were buying too much and there was too much inventory. Then in August, our business picked up again. So it seems like business is back to normal again," Chen said.
As for the remainder of the year, the PC and motherboard markets look robust. "In September, we see very strong demand," he said. "We also see the demand picking up for the Christmas season."
--Additional reporting by J. Robert Lineback.