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Intel warns on revenue
December 7, 2000: 6:44 p.m. ET

Chip maker says fourth quarter revenue likely to be near third quarter's
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NEW YORK (CNNfn) - Chip making giant Intel Corp. warned Thursday that its fourth quarter revenue is likely to be below previous expectations because of slowing demand for personal computers.

As a result of large order cancellations by customers worldwide, Intel  (INTC: Research, Estimates) expects revenue for the fourth quarter to be flat, "plus or minus a couple of percentage points," with third quarter revenue of $8.7 billion. This is lower than analysts forecasts, which called for Intel's revenue to rise 4 to 8 percent from the third quarter.

Intel's warning follows a series of earnings and revenue warnings from personal computer makers. As an example, Apple warned Tuesday of a huge shortfall in revenue for the quarter ending Dec. 30, which will cause the company to report its first quarterly loss in three years.

The Apple news caused Intel's stock to drop sharply Wednesday and led Salomon Smith Barney analyst Jonathan Joseph to issue a report saying that "all our inputs suggest Intel's fourth quarter is shaping up to be its worst quarter in over a decade. Last week, Joseph had reduced his revenue estimate for the quarter from $9.1 billion, which would have been 4 percent sequential growth, to $8.9 billion, or 2 percent growth.

Now it appears that even Joseph was too optimistic about Intel in the current environment.

Intel closed Thursday at $32.31, up 56 cents. Following the news, its shares actually rose 25 cents to $32.56 in after-hours trade, suggesting that investors had already anticipated a similar announcement from the company.

Intel's business outlook

Intel said after the close Thursday that its expectation for gross margin percentage for the fourth quarter remains 63 percent, plus or minus a point. Expenses are now expected to be approximately flat with third quarter expenses of  $2.3 billion, which is lower than the company's previous expectation that fourth quarter expenses would be up 6 to 8 percent from the third quarter.

Intel's results also will take a hit because of lower gains from its stock market investments. Interest and other investment income is expected to be approximately $675 million for the fourth quarter, down from the company's previous expectation of $950 million, because of lower than expected gains on equity investments.

Intel is adding to its production capacity, even though it faces order cancellations. The company said that capital spending for 2000 is expected to be about $6.5 billion, higher than its previous expectation of $6.0 billion

Intel didn't issue an earnings per share estimate for the fourth quarter. The mean analyst expectation is 42 cents per share, according to First Call. The company is slated to release its quarterly results on Jan. 16, 2001.

"Economies worldwide are slowing more quickly than we anticipated," said Intel Senior Vice President Andy Bryant on a conference call. 

Intel Senior Vice President Sean Maloney said that there has been a build up of low-end chipsets in manufacturers' inventories in Taiwan and that notebook production in Taiwan is down, which is unusual. However,  Intel's inventory levels remain normal, he said. 

"The business market remains slow for PCs, but it doesn't appear that we have lost significant market share," Maloney said. "Average selling prices are about where we thought they would be."  graphic