Intel warning shortcircuits semiconductor sector

Shares in Intel Corp. slipped more than six per cent Wednesday as the computer chip giant cut its fourth-quarter forecast for the second time since October.

Intel's stock ended trading down 93 cents, or 6.05 per cent, and closing at $14.44 after the semiconductor maker said its Q4 sales would reach $8.2 billion US, a 23 per cent plunge compared to the same quarter one year earlier.

This reduction represented a fall of more than $800 million from Intel's most recent sales warning of $9 billion for the quarter.

Worse still, as late as Oct. 14, Intel was expecting to post fourth-quarter sales of $10 billion, making the company's most recent forecast cut a reduction of 20 per cent from the October prediction and a sign of how fast fortunes in the once-lofty chip sector have fallen.

Three month stock chart for Intel Corp.

"Revenue will be lower than the company's previous expectation … as a result of further weakness in end demand and inventory reductions by its customers in the global PC supply chain," the Santa Clara, CA.-based company said in a press release announcing the revision.

Intel also said the company will take a writedown in the range of $1 billion for the last three months of 2008 because of failed equity investments.

Previously, Intel had said the anticipated financial hit from these investments would be in the range of $50 million. Thus, some — if not all — of Intel's negative stock price movement on Wednesday might be attributable to this writedown.

Company jitters

Still, the Philadelphia semiconductor index, a well-watched measure of the health of the chip stocks, was down almost five per cent on Wednesday on the Intel news.

As well, another chip maker, San Jose, CA.-based Microchip Technology Inc., slashed its sales forecast on Tuesday.

Microchip Technology now says it will see a sales tumble in the range of between 29 and 31 per cent for its fiscal third-quarter. Previously, the company had expected chip revenue to slip between eight and 16 per cent in the final three months of 2008.

"General economic and semiconductor industry conditions have continued to decline since our October earnings call," said Steve Sanghi, Microchip’s president and chief executive officer.

Industry shakes

Some industry watchers expect the news out of Intel and Microchip Technology to be mirrored by the rest of the chip sector as the global recession eats into the sales of computers and other devices that use these tiny pieces of silicon and other material.

U.S. technology researcher Gartner Inc. estimates that chip sales will touch $220 billion in 2009, a drop of 16 per cent compared to sales in 2008 and the second straight year in which semiconductor shipments would post negative gains.

Still, other industry experts say a turnaround in the last half of the year is possible.

One reason is that, compared to the last major downturn in the sector seven years ago, the sector is better positioned to weather the ongoing economic storm.

"The semiconductor and electronics industries are much bigger and broad-based today than they were eight years ago," wrote Bill McClean, president of market research firm IC Insights Inc. in December.