Intel chills the silicon world

A day of turmoil After profits shock, only intervention to support euro pulls markets back from brink

Net news

Andrew Clark in New York Saturday September 23, 2000

A shock profits warning from Intel, the world's biggest maker of microchips, caused turmoil on financial markets around the world yesterday as investors feared an end to the long-term boom in the computer industry. Only the unexpected intervention by the world's central banks to support the struggling euro pulled the markets out of their nosedive.

Technology stocks led the way down as shares dived in New York, Europe and throughout Asia in the wake of the Intel warning.

The FTSE 100 index fell 124 points at one point before the euro news helped it recover to close up 3.5 at 62070.7.

California-based Intel revealed that its revenue for the third quarter of the year would be up just 3% to 5%, well below forecasts of 9% to 12% growth.

It said this $300m shortfall was "primarily due to weaker demand in Europe".

The news stunned the technology world - Intel's chips are used by most major manufacturers of computers and mobile phones. Intel's news was seen as a clear indication that hi-tech industries are tightening their belts.

There was immediate speculation that the weak euro was to blame - computers are priced in dollars, and currency fluctuations have made them more expensive.

Others blamed disappointment with Microsoft's latest operating system, Windows 2000, which had been seen as a trigger for users to upgrade their systems.

Ashok Kumar, an analyst at the New York stockbroker USBancorp Piper Jaffray, said: "This is a world slowdown phenomenon. The demand profile was very strong at the start of the quarter but it's basically fallen off a cliff."

He said a 15% slide in the euro this year was not enough to explain a dive in Intel's growth rate from 28% in the second quarter to 5% since July.

"I don't think currency is the main factor behind that - it's a drop off in demand," he said.

Dan Scovel of research firm Needham & Co said: "There was a lot of hope that Windows 2000 would contribute to a big push in PCs but it's come out to pretty lukewarm reviews."

He added that "transitory issues" with the big European mobile phone makers could be a factor in the fall. Ericsson, for example, has suffered two profit warnings and the departure of its chief executive.

Intel's shares fell 21% to $48 yesterday morning, following five years of almost unbroken upward momentum. The slump wiped $65bn off the group's market value.

Other big losers included Dell, Microsoft and Cisco. In London, ARM Holdings, Misys and Freeserve were among the fallers.

Intel has a market share of 85% in microchips and is known for its slogan "Intel Inside". The group is headed by Hungarian-born Andy Grove. He co-founded Intel in 1968 and has amassed a personal fortune of more than #300m. He is known as the father of the computer industry.

Although Intel cited Europe as its main area of weakness, analysts believe other regions have slowed. Mr Kumar forecast third-quarter growth of 30% in Asia, against 60% in the second quarter, with the rate in America slowing from 30% to 10%.

A series of American companies have warned on profits recently, citing the weak euro. Amng the worst hit have been Gillette, Colgate and automo tive components firm Rockwell.

Corus, the Anglo-Dutch steel group, yesterday warned that planned price increases were under threat and its UK operations under continued pressure because of the euro weakness, writes David Gow.

Corus is cutting 3,800 British jobs, with a question mark still hanging over the future of Llanwern strip plant.

http://www.guardianunlimited.co.uk/business/story/0,3604,372043,00.html

-- Martin Thompson (mthom1927@aol.com), September 22, 2000

Answers

I don't understand. Intervention never works. Why are they doing this?

-- QMan (qman@c-zone.net), September 22, 2000.

You ain't seen nothing yet. Intel is a big, high-profile company which puts out its earnings warnings well ahead of time. Wait till you see all the short-of-anticipated-earnings reports that will be coming out next month having to do with third quarter results. These will be from the smaller than Intel companies, and will stand your hair on end.

-- Wellesley (wellesley@freeport.net), September 22, 2000.

i think the steady erosion of NASDAQ this month tells me to dump my hi-tech stocks before the advent of October, a perennially bad month.

-- Uncle Fred (dogboy45@bigfoot.com), September 22, 2000.