Intel Drops $6.75 a Share on Disappointing Earnings

In an indication that the slumping personal computer business is still a long way from recovery, Intel said Friday that both third-quarter earnings and revenues will be below analysts’ expectations.

The news knocked the computer chip maker’s stock down $6.75 per share to close at $43, and sent shares of other computer and chip companies tumbling. AST Research lost $2 per share to finish at $28.75, Dell Computer fell $2.75 per share to end at $33.125, and Apple Computer dropped $2 per share to close at $48.652.

Santa Clara, Calif.-based Intel attributed the projected drop in income to “weak demand and soft pricing in its commodity chip and systems business.” Although non-recurring items will probably keep earnings above the 83 cents per share registered in the third quarter last year, Intel said, results are likely to fall short of analysts’ estimates of $1 per share, and the fourth quarter is also expected to be weak.

In the second quarter, Intel registered earnings of $231 million, or $1.10 per share, on record revenues of $1.25 billion. The company has long prospered on the strength of its virtual monopoly on the microprocessors that form the brains inside IBM-compatible personal computers.

But Intel is facing competition in the microprocessor market from Advanced Micro Devices, which launched several clone versions of the popular 386 microprocessor chip last spring. The two companies are enmeshed in a tangled legal battle over rights to the 386, and AMD filed a $2-billion antitrust suit last month alleging that Intel was monopolizing the market.

The AMD chips appear to be gaining some acceptance. AST Research recently launched a notebook computer using the AMD chip, and AMD has begun to record quarterly profits after a long string of losses.

But Intel on Friday discounted the impact of competition from AMD, stating that its high-end 386 and 486 microprocessor sales were growing enough to offset a decline in older 386 chips. The weak results, it said, were primarily due to sagging sales of complete PC systems--which other companies sell under their own names--and commodity memory chips.

Analysts agreed that Intel’s problems were primarily a result of industrywide trends. “It sounds like the PC business is slow,” said John M. Geraghty, computer chip analyst at First Boston Corp. “There’s not that much competition from AMD.”

AMD’s stock also fell Friday, dropping 50 cents per share to $11.25.