Intel forecasts Q2 sales decline as PC market shrinks

Intel Corp said its current-quarter revenue would decline as much as 8 percent and trimmed its 2013 capital spending plans, as personal computer sales drop due to the growing popularity of tablets and smartphones.

Shares in the world's largest chip maker rallied as much as 3 percent after hours but quickly gave up the gains. The stock had been battered over the past week after researcher IDC revealed that PC sales notched a record quarterly decline in the first quarter.

Despite persistently weak demand for PCs, Intel held firm on its previous forecast that 2013 revenue would grow by a low single-digit percentage, a target some analysts believe is becoming more difficult to hit.

Chief Financial Officer Stacy Smith told analysts on a conference call after Intel's earnings report on Tuesday that its upcoming Haswell chip, as well as new ultrathin laptops and an improving economy, would revive growth in the second half of the year.

"That scares the hell out of me. They are holding to the same ultra-bullish forecast they gave before," said Stacy Rasgon, an analyst at Bernstein Research. "They are presumably pretty bullish on the new products they are planning."

Personal computer sales plunged 14 percent in the first three months of the year, the biggest decline in the two decades on record, as tablets grew more popular and buyers seemed to be avoiding Microsoft Corp's new Windows 8 operating system, according to IDC.

Under pressure, Intel also said in its quarterly news release on Tuesday that it was reducing 2013 capital spending from $13 billion to $12 billion, plus or minus $500 million.

Sticking to their guns
Intel said its first-quarter revenue fell to $12.58 billion from $12.91 billion in the year-ago quarter.

The world's largest chipmaker forecast June-quarter revenue of $12.9 billion, plus or minus $500 million. Compared to the second quarter of last year, that amounts to roughly no change or a drop of as much as 8 percent.

Analysts had expected $12.588 billion in revenue for the first quarter and $12.854 billion for the June quarter, according to Thomson Reuters I/B/E/S.

Intel posted first-quarter net income of $2.04 billion, or 40 cents a share, down from $2.74 billion, or 55 cents a share, in the year-ago period. Analysts on average had expected 41 cents per share.

"These numbers are not very solid, but the second-quarter guidance is better than feared. Conditions are probably not as bad as industry reports have suggested recently," said Doug Freedman, an analyst at RBC Capital.

Shares of Intel edged down less than 1 percent in extended trade after closing up 2.5 percent at $21.91 on Nasdaq.

© Thomson Reuters 2013