Nasdaq bloodbath predicted Friday as Intel Cuts Third Quarter Revenue Forecast

By Duncan Martell

PALO ALTO, Calif. (Reuters) - Citing weak European demand for its microprocessors, Intel Corp. on Thursday said third-quarter revenues will fall below forecasts, and it now sees a rise of only about 3 percent to 5 percent from second quarter sales of $8.3 billion.

The sales warning -- Intel's first in more than two years -- sent its stock plunging 21 percent in after-hours trading and dragged down other high-tech stocks. The late afternoon announcement by the world's largest maker of computer chips follows recent speculation global demand for microprocessors and personal computers is waning. The third quarter is typically the slowest for the worldwide chip and PC industry, and Intel tends to make a large portion of its quarterly sales in September. But not this time. The slack demand also suggests that the typical back-to-school season may not be getting underway as quickly as expected. On top of that, some analysts said that Microsoft Corp.'s Windows 2000 (news - web sites) has not been selling as briskly as anticipated.

``Growth rates in Europe in the third quarter dropped to single digits from 20 percent or more earlier,'' said analyst Ashok Kumar at U.S. Bancorp Piper Jaffray. ``Windows 2000 has been, well, how many ways do you spell dud? As such, there's no compelling reason for businesses to upgrade.''

In all of 1999, Europe accounted for 26.5 percent, or $7.79 billion of Intel's $29.4 billion in sales.

Tech Stocks Get Whacked In After-Hours

While there had been concern in recent weeks about slowing PC sales, high-technology stocks have also taken a hit as a declining euro raised investor concerns that sales in euros would convert into fewer dollars, hurting sales at PC makers and others. But Kumar said the euro isn't an issue for Intel because the chip giant prices its chips in dollars, not euros.

Shares of technology bellwether Intel last traded at $49-3/4 on Instinet -- a low unseen since early February -- and well off $61-31/64, where it was when Nasdaq trading was halted at 4:17 EDT. The stock had risen 49 percent this year.

Also on Instinet, Microsoft Corp. MSFT.O traded at $60-1/2, down from its close of $64-3/16, Dell Computer Corp. DELL.O fell to last trade at $33-7/8 from a close of $37-15/16 and even Cisco Systems Inc. CSCO.O declined, falling to $57-1/4 from a close of $61-1/8. International Business Machines Corp. IBM.N dropped to $122 from $126-1/16 and Hewlett-Packard Co. HWP.N slipped to $97 from $99-15/16. Investors can expect a blood bath of selling on Friday.

``This is going to hurt,'' said Guy Truicko, a portfolio manager at Unity Management Inc. ``The Nasdaq is going to test the lows ... we had two days ago.''

Earlier this month, Kumar issued a report forecasting a slowdown in demand in all markets around the world, except Japan and said that sales would most likely miss consensus analyst sales forecasts for the quarter. Known for controversial calls in the chip and PC industries, Kumar has made prescient calls in the past, particularly on Dell. And, again this time, he was right.

Whatever the case, it now seems that the PC market might not be as strong as some once thought. ``The seasonal upturn in Europe begins in August, but this year it was uneven,'' said analyst Dan Scovel at Needham & Co. ``One thing is for sure, it seems pretty unlikely PCs are doing better than expected.''

'Road Kill'

Analysts also said to expect Intel's rival Advanced Micro Devices Inc. (NYSE:AMD - news) to be hurt, perhaps more so than Intel, because of the glut in supply of microprocessors in the face of flagging demand. AMD's chip, the Athlon, has for the better part of a year been competing successfully against Intel's Pentium III.

``I'm sure there's a big sign flashing in front of AMD saying 'Road Kill,' `` Kumar said. ``When you get this magnitude of an inventory overhang, AMD basically gets destroyed.''

In its statement, Intel said it saw its demand off primarily in Europe, but it did not provide further details. One Intel official told Reuters the company had not done enough of its own analysis to know exactly what factors had caused the slower than expected sales.

European technology and telecom stocks had already fallen sharply earlier on Thursday after a warning by U.S. long-distance carrier Sprint Corp. added to fears that high oil prices and a weak euro currency would derail profit growth in the region.

Financial analysts on average had expected Intel to earn 41 cents per share in its third quarter vs. 28 cents a share in the same quarter one year ago, according to investment research firm First Call/Thomson Financial.

Intel did not disclose an earnings forecast in its statement. Intel did say that it expects its third quarter gross margins to be about 62 percent, plus or minus one percent, which is below previous guidance of roughly 63 percent to 64 percent. Email http://dailynews.yahoo.com/h/nm/20000922/bs/tech_intel_dc_2.html

-- Carl Jenkins (Somewherepress@aol.com), September 22, 2000

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dow jones 10661.65 -103.87 9/22 9:47 nasdaq 3654.04 -174.83 9/22 9:48 s&p 500 1427.42 -21.63 9/22 9:47 russell 2000 503.65 -10.7 9/22 9:48 nyse composite 652.41 -1.82 9/22 9:48 dow transports 2577.69 -9.76 9/22 9:47 dow utilities 372.24 5.81 9/22 9:48 amex composite 919.01 -8.74 9/22 9:48

-- PHO (owennos@bigfoot.com), September 22, 2000.