Intel slashes outlook as PC demand weakens

Intel severely cut its third-quarter sales forecasts Friday as demand for personal computers has slowed beyond expectations.

The world’s largest chipmaker said it now expects revenue of between $12.9 billion and $13.5 billion in the current quarter, down from its previous forecast of between $13.8 billion and $14.8 billion. Intel said corporations are ordering fewer PCs, consumers in emerging markets are sitting on the sidelines, and PC manufacturers are reducing their inventories to meet sinking demand.

Intel blamed a weakening global economy for slumping chip sales.

As a result, Intel said it would cut spending — the company had expected to spend $12.1 billion to $12.9 billion in 2012, but Intel said capital expenditures will come in below that level by the end of the year.

Profits will take a hit too — gross margins are now forecast to be between 61% and 63%, at the low end of the chipmaker’s target range of between 61% and 65%.

Shares of Intel (INTC, Fortune 500) fell 3% in morning trading.

Intel had already warned in July that its outlook would be weaker than Wall Street analysts had expected, citing a challenging economic environment.

Yet the company had largely been able to avoid the worst of a slumping PC market. Though worldwide shipments of PCs fell by 0.1% in the second quarter, according to separate surveys by Gartner and IDC, Intel’s PC chip sales actually rose by 4% last quarter. The economy now appears to be catching up to Intel.

Still, chief rival AMD (DOX) has fared much worse. Sales have tumbled, and the stock has matched it — falling by more than 32% this year.

Some investors are holding out hope that the upcoming new Windows 8 operating system from Microsoft (MSFT, Fortune 500) will help rejuvenate the PC market. But shares of the two largest PC companies, Hewlett-Packard (HPQ, Fortune 500) and Dell (DELL, Fortune 500), have been hit hard this year as more consumers flock to tablets, most notably Apple’s (AAPL, Fortune 500) iPad.


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