Intel, 2 Other Tech Giants Expect Weak 4th Quarter
Slumping sales and eroding earnings were forecast by three more technology titans Thursday, with microprocessor giant Intel Corp. predicting flat fourth-quarter growth “as a result of recent large cancellations by customers worldwide.”
The news from Intel and fellow chip makers National Semiconductor Corp. and Motorola Inc. follows a seemingly endless stream of tech industry lapses linked to flagging demand. Similar advisories have been issued in the last few weeks by personal computer makers Gateway Inc. and Apple Computer Corp., and chip makers LSI Logic Corp. and Altera Corp., among others.
Software behemoth Microsoft Corp. and Web leader Yahoo Inc. also saw their stocks slump Thursday.
Intel said that fourth-quarter sales would be little changed from the third quarter, a sharp decline from earlier estimates of a 4% to 8% increase. Before the news was announced, the stock had inched up 56 cents to $32.31 on Nasdaq after plunging on Wednesday, when an analyst predicted the current period would be the company’s “worst quarter in over a decade.” In after-hours trading following the warning, Santa Clara-based Intel’s stock fell to $30 before recovering to $32.50.
Intel shares have lost more than half their value--a total of $287 billion-- since Aug. 31, because of flagging demand for PCs, manufacturing and design missteps, and stronger competition from rival Advanced Micro Devices Inc.
National Semiconductor cautioned that sales and profit would weaken in the current quarter even though the firm handily beat Wall Street’s estimates for the last quarter. The Santa Clara-based chip maker earned $107 million, or 56 cents per share, on sales of $595 million in its fiscal second quarter; analysts had expected 51 cents per share. In the same period a year earlier, the company had earned $70 million, or 37 cents per share, on sales of $514 million.
But National Semiconductor’s share price dropped $1.13 to close at $18.88 in NYSE trading Thursday.
Motorola said that profit and revenue would fall dramatically below previously forecast levels in the current quarter and in the first quarter of next year. The Schaumburg, Ill., firm saw its shares slipped 6 cents in NYSE trading, to $17.75, recovering from a low of $15.81.
As with slowing PC sales, Motorola’s problems stem partly from overblown estimates for worldwide cellular phone sales that have been scaled back.
Motorola was unable to produce lower-cost phones quickly enough, so it had to slash prices on its current phones to stave off competition from Nokia Corp. and others.
“That’s why their earnings got hurt so badly,” said Michael Murphy of the California Technology Stock Letter. Motorola now predicts quarterly earnings of only 15 cents per share on sales of $10 billion, compared with the 27 cents per share on sales of $10.5 billion it had expected as of October.
Analysts greeted the litany of bad news with a shrug.
“We went to such an extreme level of valuation that it was a mania,” said Fred Hickey, editor of the High-Tech Strategist, a newsletter in Nashua, N.H. “Unless we’ve repealed the business cycle . . . the excesses have to be corrected.”
Yahoo and e-tail leader Amazon.com Inc. also saw their stocks drop sharply Thursday, continuing recent slides. Amazon shares fell $2.25, or nearly 10%, to $21.38 after a major advertising agency dropped Amazon as an account, citing “fundamental disagreements” with the company’s direction. Yahoo hit a 52-week low, falling $2.56, to $34.94, after Derek Brown, an analyst with W.R. Hambrecht in San Francisco, downgraded the company from “buy” to “market neutral” over concerns about its advertising revenue in 2001.
Microsoft’s stock lost $3.56 to $53.13 Thursday, after analyst Rick Sherlund of Goldman Sachs cut his estimate for the firm’s earnings this fiscal year by 3 cents a share to $1.88; the consensus estimate from First Call/Thomson Financial stands at $1.91. Microsoft supplies the operating and productivity software for the vast majority of the world’s computers, so slack PC demand cuts directly into its bottom line.
With most tech stocks in retreat, analysts suggested that investors may be in for a lengthy downturn.
“Things can come down 50% . . . and they’re still over-valued,” Hickey said.
John Rossi, managing director of the San Francisco-based investment bank Robertson Stephens, views the current tech malaise as inevitable.
Rossi noted that the tech industry saw similar downturns in 1985, 1989, 1992 and a minor decline in 1995.
