The No. 1 chipmaker's mid-quarter outlook is Thursday; investors will be seeking hints about demand.
June 4, 2003: 3:40 PM EDT
NEW YORK (Reuters) - Intel Corp. may indicate that its second quarter is on or close to target, but if the industry bellwether confirms there is weakness in Asia, technology stocks and the broader market will suffer, industry analysts said.
Intel's "mid-quarter" outlook, which is expected Thursday after the market close, will be closely watched by investors, who are worried about the already slow market for technology, the war in Iraq, the SARS virus, and a build-up of inventories of computer components, analysts said.
"I think Intel could be a very big deal at this juncture and stage of the equity market rally. Intel, being a Dow component and a technology leader, may set the stage for the direction of that sector," said John Person, head financial analyst with Infinity Brokerage Services in Chicago. "If they indicate a negative bias, this could certainly put a temporary top in the market," Person said.
Intel, the top maker of microprocessors that are the brains of personal computers, has said to expect second-quarter revenues in the range of $6.4 billion to $7 billion, which would represent a decline of 4 percent to a rise of 5 percent compared with the previous quarter.
Analysts cautioned that with much of Intel's revenues booked in the last few weeks of June, it will be difficult for the company to make an accurate prediction of sales, particularly as there are recent signs of weakness.
In Taiwan, there are indications that motherboard shipments are worse than expected this quarter, analysts said. Motherboards contain a computer's basic circuitry, including many of the microprocessors that Intel makes.
In addition, there are signs that inventories of these chips and components are building, analysts said. "Although it appears as though it is too early in the quarter for Intel to negatively pre-announce, we believe the company will have to lower guidance at some point," JP Morgan analyst Christopher Danely wrote in a research note, citing concerns about inventory build-up and the SARS virus.
He has an "underweight" rating on the stock and JP Morgan has not done banking for Intel according to the note.
Will SARS have an impact?
The weakness may be connected to the SARS epidemic in China, which could have hurt demand in one of the fast growing regions for PC sales. No. 1 PC maker Dell Computer Corp., for instance, has targeted China and is trying to win market share there from local PC maker Legend.
"China has been cited as an area of growth and I think it's naive to think that SARS doesn't have much impact on that," said Dan Scovel, an analyst at Needham & Co., who rates the stock a hold. Needham has not done banking for the firm and Scovel owns no Intel shares.
Demand for PCs has been weak for the past several years as corporations have cut back on technology spending and made do with the systems they bought in the late 1990s. Technology companies are watching closely for signs that companies are once again buying new computers.
Lehman Brothers analyst Daniel Niles said he believes there is extra supply of chips and other computer components right now due to a build-up of inventories because of not only SARS, but the war in Iraq. "The question is whether end-demand can improve enough to counteract any negative impacts from that," Niles said.
Intel shares were up 13 cents, or 0.6 percent, to $21.17 in afternoon trading on the Nasdaq, where it was the second most active issue. The broader Nasdaq Composite index was up 1.6 percent.
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