Narrowed Intel Q1 Outlook Dampens Tech Sector

A quiet trading day on Wall Street segued into a small dip after market close Thursday when semiconductor leader Intel (Nasdaq: INTC) narrowed its first-quarter revenue expectations. This morning, however, Intel's stock dropped more steeply, shedding more than 2 percent of its value on the news.

Intel announced Thursday that its revenue in the first quarter will total between US$8 billion and $8.2 billion, compared with a previously forecast range of $7.9 billion to $8.5 billion. A slight change in gross margin percentage also is expected, at 60 percent, plus or minus a point, compared with the previous expectation of 60 percent, plus or minus a couple of points. The company does not give guidance on earnings.

Intel reported demand for its architecture products is consistent with the low end of normal seasonal patterns yet still significantly higher than in the same period last year. Demand for the company's communications products is in line with expectations stated at the beginning of the quarter. Intel's first quarter ends March 27th.

Semiconductor Strength

On March 1st, the Semiconductor Industry Association (SIA) reported worldwide sales rose 26.6 percent year-over-year, to $15.5 billion, in January 2004, along with a typical month-over-month decrease of 3 percent from December 2003 to January 2004.

"For more than a decade now, with the exception of the boom year 2000, sales have been slightly lower in January than December because of the seasonality of the semiconductor industry," SIA president George Scalise said in a statement. "We continue to expect sales for all of 2004 to meet the current forecast of 19.4 percent with broad-based strength in all major end-markets, especially computation, communications, global consumer and automotive."

In discussing the mid-quarter sales forecast, Andy Bryant, Intel executive vice president and CFO, commented in a conference call after market close that "these results are in line with our January 14th outlook. All other aspects of the first-quarter outlook are essentially unchanged." He said the first quarter will see seasonal revenue declines but excellent year-to-year progress in profitability.

Markets Oversupplied

Moving from the high end to the low end of seasonality, Bryant told analysts: "We're talking about a pretty small change. I'd say it comes from Asia and Japan, where there was some inventory build in the fourth quarter. Most of that has been worked through now."

Although he was unable to speculate on specific business segment results, Bryant told the Webcast audience Thursday that Intel expects to see a gradual build in sales as people update equipment. "Not an instantaneous upgrade cycle, but a slow and steady upgrade cycle over a period of time," he said. "We see nothing to change our opinion on that."

For his part, IDC analyst Mario Morales told the E-Commerce Times that Intel's reduced expectations are not a sign of trouble. Rather, it is what was expected during a seasonal period. "The industry has a strong fourth quarter, then the first [quarter] is down, based on their sales guidance," he said. "There was some speculation this first quarter would be better than expected, but it is still in the seasonal downturn where the markets are softer.

"The rollout of their products and new processes is on schedule, and they continue to push 12-inch production and 90-nanometer process technology with cost advantages and gross margins," Morales added.

"Overall, Intel's 2004 numbers are not changed, so the news bodes well," he said.

Market Response

Despite this generally positive outlook, aftermarket action moved Intel stock down about 2 percent to $28.87 after it closed at $29.65 on Thursday.

Friday's opening bell saw Intel stock open at $28.94, down 71 cents per share from yesterday.

The company's announcement also may have had an effect on the broader stock market. The technology-laden Nasdaq Composite Index opened down 18.03 points, or 0.88 percent, on Friday at 2,037.08.