Intel’s Weak Outlook Drags on Tech Sector

By Jennifer Yousfi
Managing Editor

Despite “record” revenue in the fourth quarter of 2007, Intel Corp. (INTC) could not live up to analyst expectations, causing its share price to plummet.

Santa Clara, Calif.-based Intel released a disappointing quarterly earnings report Tuesday, causing the shares to open yesterday (Wednesday) over 13% lower from the prior day’s close.

On the surface, Intel’s numbers seem positive.  The chipmaker’s fourth quarter revenue was up 10.5% year-over-year to $10.7 billion.  Net income was $2.3 billion, or 38 cents per share.  But Intel failed to meet analyst sales expectations by $100 million.

“We enter 2008 with the best combination of products, silicon technology and manufacturing leadership in our history,” said Paul Otellini, Intel president and CEO, in the accompanying statement.

That may well be true, but thus far it has been a bumpy few weeks for Intel and it doesn’t look like things are going to improve in the coming months.

The chipmaker’s troubles started early when Bank of America analyst Sumit Dhanda downgraded Intel’s rating, along with several other chip manufacturers, on the first trading day of the New Year.  Although Dhanda said Intel’s “competitive positioning has never looked better to us,” MarketWatch reported, it is unlikely the company will be able to offset the first half of the year, which is considered weak on a seasonal basis.

Intel’s own outlook for the first quarter, included in the quarterly earnings report, was just as bleak.  Revenue for the first three months of the year is expected to drop to just $9.4 billion, below analyst estimates of $10.1 billion.  The release acknowledged the rising cost of consumer credit and a deteriorating economy could be a drag on sales.

“The immediate knee-jerk [reaction] is that there must be something wrong with the PC industry,” Stifel Nicolaus (SF) analyst Cody Acree told Reuters.

Intel shares dropped $2.81 (12.38%) yesterday to close at $19.88.  Intel’s troubles spilled over onto both its chipmaker rivals and its corporate customers as losses spread across the technology sector.  Texas Instruments Inc. (TXN) closed at $29.50, down $0.22 [0.74%] for the day, while Apple Inc. (AAPL) shares lost $9.40 [5.56%] to close at $159.64.

One tech stock to buck the downward trend was Advanced Micro Devices, Inc. (AMD).  Shares gained $0.45 [7.35%] for the day to close at $6.57.

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