Intel to slow production as PC sales drop

Intel, the world’s biggest chipmaker by revenues, said it was slowing production at its factories as orders from PC makers fall in tough economic conditions.

Its fourth-quarter outlook predicted stagnating revenues and margin erosion from underutilised plants and inventory write-offs, with PC makers keeping inventories lean as they wait to gauge consumer demand for the new Windows 8 operating system.

The glum outlook from a bellwether of the technology industry aligned with a forecast from the IHS iSuppli research company last week that PC shipments would decline in 2012 for the first time in 11 years.

Paul Otellini, chief executive, said the PC market was growing at about half the normal rate in the third and fourth quarters. “How much of that halving is macroeconomic versus the timing of the Windows 8 build and the share-of-wallet war for tablets versus PCs is TBD [to be determined] and we’ll know a lot more about that 90 days from now after the Windows 8 launch [on October 26],” he said.

Intel on Tuesday reported $13.5bn in third-quarter sales, at the top end of revised guidance and ahead of Wall Street expectations of $13.2bn. Earnings per share of 58 cents beat an analyst consensus of 50 cents and gross margins of 63.3 per cent were ahead of expectations of 62 per cent.

Compared to the same quarter a year ago, revenues were down 5 per cent, net income of $3bn was down 14 per cent and earnings per share fell 11 per cent from 65 cents. The Gartner and IDC research companies reported last week that global PC shipments fell more than 8 per cent in the third quarter, blaming in part consumers choosing smartphones and tablets over PCs.

Intel shares traded 3.5 per cent lower at $21.58 in extended trading in New York on the news. They have fallen by more than 20 per cent in the past six months.

Intel says more than 140 thin-and-light ultrabooks using its chips will be available in the coming months, with more than 40 having touch screens to take advantage of Windows 8’s new features. Intel processors will also be in more than 20 tablets and more than a dozen tablet-laptop hybrid convertibles.

Stacy Smith, chief financial officer, said revenues of $13.6bn, plus or minus $500m, expected in the fourth quarter would represent a slight increase of 1 per cent on the third quarter.

He predicted gross margins would fall to about 57 per cent as Intel significantly reduced its factory loadings, costing about $500m in underutilisation charges.

Intel’s processors power about 80 per cent of the world’s PCs, but some analysts doubt whether it can successfully expand into the faster-growing tablet and smartphone markets.

“Intel has a history of navigating the industry’s transitions and emerging better and stronger,” Mr Otellini maintained.