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Intel narrows revenue outlook

Intel Corp. Thursday set a sales target slightly below the Wall Street average, sending shares lower as the world's largest chip maker dashed some hopes raised by more bullish rivals.
/ Source: Reuters

Intel Corp. Thursday set a sales target slightly below the Wall Street average, sending shares lower as the world's largest chip maker dashed some hopes raised by more bullish rivals.

Intel, which makes the microprocessors found in nearly 90 percent of personal computers worldwide, said it now expects revenue of $10.4 billion to $10.6 billion, in the middle of its previous range of $10.2 billion to $10.8 billion.

Analysts have expected revenue of $10.6 billion, according to Reuters Estimates.

Investors had hoped the Santa Clara, Calif.-based company would move toward the top end of its previous outlook after other chipmakers such as Texas Instruments Inc. and Xilinx Inc. strengthened forecasts Wednesday.

"It's going to be viewed as moderately disappointing, not necessarily a structural disappointment, but optimism had definitely become more prevalent with general semiconductor demand overall," said Cody Acree, an analyst with Stifel, Nicolaus & Co.

Intel shares fell 2.7 percent in extended trading after the forecast was issued. The stock fell 1.7 percent to close at $25.70 in regular Nasdaq trading.

Intel shares have underperformed the broad industry, rising 9.4 percent over the past year, compared to 19.6 percent for the American Stock Exchange Semiconductor Index.

"I do think that the issue is that Intel, at its size, can't produce the kind of upside surprise that some other companies can. It's a really big boat and can't turn very quickly," said Roger Kay, president of market research firm Endpoint Technology Associates.

"There's a lot of cynicism about their growth prospects," Kay said.

The company also reiterated expectations that gross profit margins would be about 63 percent, but narrowed the range from a "couple points" above or below to one point up or down.

"The significance of that is that there are a number of people that may view Intel as having reached peak margins and will view that as a negative," said Bruce Bartlett, director of growth equities at Lord Abbett & Co., which owns Intel stock.

Intel's capital spending is now expected to come in below the midpoint of its previous forecast of $5.9 billion, and fears of weaker demand sent shares of chipmaking equipment companies down.

In after-hours trading, Applied Materials Inc. fell as much as 2.7 percent to $18.24 after closing 26 cents lower at $18.73 on Nasdaq. Test gear maker KLA Tencor Corp. shed 2 percent to $50.70 from its close of $51.70.

Chief Financial Officer Andy Bryant downplayed the significance of the slightly lower capital spending estimate.

"Sometimes it's a little higher, sometimes a little lower. It's purely an estimate issue. There's no change to what we're trying to buy or install," Bryant told a conference call.

Intel's business was still strong thanks to growth in emerging markets, strong demand for notebook computers and benefits from new manufacturing technologies that allow it to make more powerful chips more efficiently, Bryant said.