Intel Fourth-Quarter Sales May Miss Estimates on PC Doldrums

(Bloomberg) -- Intel Corp. forecast fourth-quarter sales that may fall short of estimates, sparking concern that lackluster year-end personal-computer demand will mean manufacturers have no need to replenish chip inventories built up in recent months.

Revenue will be $15.7 billion, plus or minus $500 million, the company said in a statement Tuesday. Analysts had projected $15.9 billion, the  average of estimates compiled by Bloomberg. Adjusted gross margin, the only measure of profitability that Intel forecasts, will be in line with analysts’ estimates at 63 percent.

Intel’s third-quarter sales were lifted by processor orders from PC makers that decided to build up their supply of chips ahead of the holiday shopping season. The dimmer fourth-quarter outlook from the world’s largest semiconductor maker may indicate that PC demand has been slow to accelerate, meaning manufacturers will again be sitting on unused stockpiles of chips.

“It’s my concern that we just have an inventory build that could carry on into the first quarter,” said Kevin Cassidy, an analyst at Stifel Nicolaus & Co. “The market might have thought that PCs would be better into the fourth quarter.”

Intel shares, which had gained 9.6 percent this year, slipped 3.5 percent in extended trading following the announcement. Earlier, they gained 1.2 percent to $37.75.

Third-Quarter Pickup

Third-quarter net income rose to $3.38 billion, or 69 cents a share, compared with $3.11 billion, or 64 cents, in the same period a year earlier. Revenue rose 9.1 percent to $15.8 billion. Analysts, on average, had predicted a profit of 67 cents a share on sales of $15.6 billion. Adjusted gross margin, or the percentage of sales left after subtracting production costs, widened to 65 percent from 64 percent, Intel said.

The company’s client computing group, which sells PC chips, posted third-quarter sales of $8.89 billion, a gain of 4.5 percent from a year earlier.

On Sept. 16, Intel raised its forecasts for the third quarter, citing “replenishment of PC supply chain inventory.” The Santa Clara, California-based company increased its projection to about $15.6 billion from about $14.9 billion.

There were other signs of improvement in PC demand last quarter. Worldwide shipments fell 3.9 percent in the third quarter, market researcher IDC said earlier this month, a smaller drop than the decline of 4.1 percent in the second quarter. Unit sales in the U.S. rose 1.7 percent, a second consecutive quarterly gain.

Intel’s data center division, which provides server chips for computers used by corporate networks and for the large systems run by companies such as Google Inc. and Amazon.com Inc., had revenue of $4.54 billion, up 9.7 percent from a year earlier. The company set an annual target of double-digit percentage growth for that unit -- a prediction it missed in the first half of the year, leading to concerns Intel might fall short for the year.

“There’s some disappointment there,” said Stifel Nicolaus’s Cassidy.