Last updated: August 27, 2010 8:35 pm

Intel warns amid global PC slowdown

Intel added to worries about advanced economies on Friday as it warned that consumer demand for computers was slackening amid widespread fears of a double-dip recession.

The warning from the world’s biggest chipmaker, which provides microprocessors for four out of every five PCs sold globally, cast a chill over the PC industry already reeling from reports of a general slowdown in PC sales in the third quarter.

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Intel said third-quarter revenues were now expected to be about $11bn, down from the $11.6bn it forecast in its quarterly earnings report just six weeks ago. “Revenue is being affected by weaker-than-expected demand for consumer PCs in mature markets,” the company said.

The warning is in contrast to a strong second-quarter rebound enjoyed by the Silicon Valley company, which it said was the best in its history, when reporting in July.

Intel also reduced its gross-margin forecast on Friday by 1 percentage point to 66 per cent. But it was more upbeat about the strength of the corporate market saying its difficulties were being “partially offset by slightly higher average selling prices stemming from solid enterprise demand”.

Analysts have been trimming their estimates for Intel in recent weeks as PC makers in the US have been disappointed by sales in the “back-to-school” season.

Hewlett-Packard and Dell have reported weakening demand and Taiwan-based Acer said its July shipments were 38 per cent lower than June’s. US PC sales were down 15 per cent on average, according to analysts.

A further deterioration was reported in the first week of August and PC makers are expected to begin cutting prices to try to boost demand.

“The weak [US] domestic back-to-school season and lacklustre demand from Europe have translated to significant pricing pressure in the [PC] food chain,” Ashok Kumar, an analyst at Rodman & Renshaw analyst, wrote in a research note.

“Key component suppliers – processors, displays, memory, drives – have instituted price rebates to try to resuscitate demand.”

Intel shares were up 1.4 per cent at $18.44 in midday trading in New York, but are down 15 per cent over the past month.

Intel is looking to diversify to reduce its reliance on the PC market and is creating new chips for TVs and smartphones.

It is understood to be close to buying the wireless business of German chipmaker Infineon to further its phone ambitions.

One person involved in the bidding process said the purchase could be for about $1.4bn and could be announced as early as the weekend.

Additional reporting by Joseph Menn

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