Intel’s 2nd-Quarter Sales Dip--so Does Its Stock
An uncharacteristic stumble by Intel Corp. sent a shudder through Wall Street on Friday, as the company’s forecast of disappointing second-quarter sales prompted an early sell-off of technology stocks.
The Nasdaq market index dipped 50 points, and Intel shares plunged as much as 14% before both made partial recoveries while investors digested the news that the giant semiconductor company was struggling with a product transition and slow sales in Europe.
Santa Clara-based Intel makes microprocessors that power more than 80% of the world’s personal computers, and its stock is widely considered a bellwether for the high-tech industry.
The unsettling news was the latest in a series of blows Intel has absorbed in recent weeks, including the discovery of a flaw in the company’s latest chip, strong new products from rivals and a sweeping patent infringement suit filed by Digital Equipment Corp.
But after the sense of panic faded Friday, analysts maintained that all of these setbacks are minor and that Intel’s unrivaled position in the computer industry is secure.
“All in all, nothing really changes except that the second quarter doesn’t come in as strong,” said William Kurtz, an analyst at H.G. Wellington in New York. “The news came before the opening of the stock market, and a lot of people didn’t have time to get a handle on it. Once the information filtered through, things stabilized.”
The topsy-turvy day was triggered by Intel’s announcement that revenue for the second quarter, which ends June 27, would be down 5% to 10% from sales of $6.4 billion in the first quarter. Earlier expectations were that sales would be up slightly.
Intel spokesman Howard High said the stall primarily reflected a sales slowdown in Europe, which accounts for about 25% of Intel’s revenue. He added that the company did not have an explanation for the slowdown and was unsure how long it would last.
But High said the second-quarter downturn is also the result of an unexpectedly abrupt transition in the computer industry to Intel’s latest products, the Pentium MMX chip and the just-released Pentium II.
Intel expected PC manufacturers to migrate to the new microprocessors gradually over the remainder of the year. Instead, High said, the shift has happened so rapidly that demand for older Pentiums is tumbling, while orders for the new chips are outstripping Intel’s ability to supply them.
Analysts saw a silver lining in that cloud, because sales and profit could climb again as Intel shifts resources to the new products, a process that typically takes about 12 weeks.
High also stressed that the second-quarter setbacks don’t imply broader industry problems and that the company might not have drawn attention to them so quickly if top Intel executives weren’t scheduled to meet with analysts and investors in New York next week.
But in the volatile high-tech industry, even a temporary slip is more than some investors can tolerate. Intel’s stock recovered some of the value it lost Friday but still closed at $151.50, down $12 17/64 per share, in heavy trading on the Nasdaq market.
Other technology stocks were also dragged down by Intel’s news, and Nasdaq’s computer stock index fell nearly 2%, the exchange’s only industry index to post a decline on Friday.
