SAN FRANCISCO — Intel Corp. Friday (Aug. 27) lowered its sales target for the third quarter, saying the company now expects revenue to be between $10.8 billion and $11.2 billion, down from a previous estimate of $11.2 billion and $12 billion.
Intel (Santa Clara, Calif.) said revenue is being affected by weaker than expected demand for consumer PCs in mature markets. Inventories across the supply chain appear to be in-line with the company's revised expectations, Intel said.
Earlier this month, J.P. Morgan analyst Christopher Danely lowered his firm's estimates for Intel's sales and earnings, saying checks in the Taiwan PC supply chain indicated that order rates from the PC end market deteriorated sharply during the last part of July.
On Friday, Danely said in a report that Intel's guidance adjustment was just the first stage in a three-stage downturn for Intel.
"A typical inventory correction occurs in roughly three stages," Danely said. "The first stage is when a semiconductor company lowers revenue estimates but doesn’t lower utilization rates or spending and does not acknowledge the downturn. The second stage is when the semiconductor company admits the downturn, cuts utilization rates and spending, and begins the bottoming process."
Danely said he expects Intel to reach the second stage of downturn sometime during the fourth quarter. He lowered J.P. Morgan's estimate for Intel's 2010 sales to $43.6 billion from $44.1 billion and its estimate for Intel's 2010 earnings to $1.89 per share from $1.95 per share. He lowered J.P. Morgan's December price target for Intel shares to $17 from $19 and reiterated a "neutral" rating on the stock.
"Essentially, back-to-school appears weak as the global macroeconomic environment softens, and that caused some finished system PCs to accumulate at retailers and elsewhere," said Craig Berger, an analyst with FBR Capital Markets, in a report. " So as HP, Dell, and Acer align production rates with sell-through rates, INTC is seeing consumer order cancellations."
Berger, who also reduced his estimates for Intel, said he believes corporate PC refresh volumes and global server strength are helping to mitigate the third quarter downside. So far, chip prices remain firm, he said.
Intel traded at $18.38 in afternoon trading following the guidance cut Friday. The No. 1 chip vendor is scheduled to report third quarter earnings Oct. 12.