NEW YORK (CNNfn) - Chip giant Intel Corp. stunned the market and sent its shares tumbling Thursday after it revealed that weakening demand in Europe will result in third-quarter revenue growth that may amount to as little as half what some analysts had expected.|
Intel (INTC: Research, Estimates) shares, which have been choppy in recent weeks amid growing investor uncertainty about the company's third-quarter results, were hammered in after-hours trading. After falling $1.59 to $61.47 in Nasdaq trade ahead of the news, the stock tumbled another 21 percent to $48.56 in extremely heavy volume trading after hours.
A slew of other technology stocks tumbled in after-hours trade as well, setting the stage for what market watchers expect to be a brutal session for the tech sector on Friday.
After Thursday's closing bell, Intel, world's largest supplier of PC microprocessors, said it expects its revenue for the quarter to be up 3 to 5 percent from the $8.3 billion the company reported in the second quarter, well below previous expectations.
Analysts had generally expected Intel to post between 6 and 8 percent revenue growth during the quarter. Merrill Lynch's Joe Osha had most recently said he was expecting Intel's top line to come in at $8.9 billion. SG Cowen's Drew Peck had pegged a third quarter revenue forecast of $8.8 billion.
In a statement, the company blamed weak demand in Europe for the shortfall. It did not provide any guidance on third-quarter earnings. The most recent forecast of analysts polled by First Call was for Intel to earn 41 cents per share during the third quarter.
Intel also said it expects third-quarter gross margins to be about 62 percent, plus or minus 1 percent. That's below previous guidance of roughly 63 percent, which executives provided when they reported the company's second-quarter results in mid-July.
Intel's stock has been extremely volatile in recent sessions amid rising investor uncertainty about its third-quarter financial performance. Much of that uncertainty hinged on what had been perceived as weaker-than-expected demand for PCs. Intel did not provide any additional details about that business line.
"It seems pretty unlikely that this is not coming out of PCs since that represents two-thirds of their business," said Dan Scovel, chip industry analyst at Needham & Co. "Intel has a dominant position in that market, and this would seem to indicate that there is some weakness in the PC space."
And that could mark the beginning of a sharp downturn among tech stocks, market watchers said.
"They're going to get clobbered," said Lehman Brothers analyst Dan Niles. "If it's a Europe problem, that affects everybody, not just Intel."
The selling already had spilled over to several other big-name tech stocks in after-hours trade Thursday. Advanced Micro Devices (AMD: Research, Estimates), Intel's chief rival in the PC microprocessor market, closed at $27.56 then plunged 19 percent to $23.94. Compaq (CPQ: Research, Estimates), the world's largest PC maker, closed at $30.87 and fell 10.6 percent to $27.87. Dell Computer (DELL: Research, Estimates) shares were down $4.06, or 10.8 percent, at $33.88 after closing at $37.94. Microsoft (MSFT: Research, Estimates) tumbled $3.06 to $61.12, a 4.7 percent slide from its closing price of $64.19.
"What we're seeing is an extension of PCs," said Needham's Scovel. "We're probably going to see those companies with PC exposure get penalized by association with the PC market. That's not necessarily fair across the board, but the bigger the exposure to PCs, I would say the bigger the uncertainty that there won't be a problem."
At the same time as it lowered its revenue forecast, Intel upped its estimate for "interest and other income," which includes gains on equity investments, to $900 million, $100 million more than it had previously expected.
Intel is expected to post its third-quarter results on Oct. 17.