Intel Warns Of Weak Q3, Says PC Demand Still Soft

Intel said it expects its third-quarter revenue to be $13.2 billion, plus or minus $300 million, marking a hefty drop compared to its previous guidance of $13.8 billion to $14.8 billion. Intel shares dropped 3.2 percent to $24.29 when the market opened Friday morning.

The Sunnyvale, Calif.-based chip maker also said it is withdrawing all other quarterly and full-year expectations until its third-quarter earnings report is issued on Oct. 16.

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Intel's third-quarter woes are carrying over from its second quarter, when it reported a 4 percent year-on-year drop in net income to $2.8 billion. Sluggish notebook and desktop sales, which weakens PC makers' demand for processors, was again cited as the reason for the drop.

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"What we had expected we would see by now is that the U.S. and Western Europe consumer business would be recovering from a softness that we have seen for several quarters," Intel CEO Paul Otellini told investors during the second-quarter earnings call in July.

Industry analysts IHS iSuppli predicted in a research report this week that Intel's share of the microprocessor market will drop from 35 percent to 29 percent by 2016. Analysts attributed the loss to the surge in adoption of smartphones and tablets, which have been making their way steadily into the enterprise market as the bring-your-own-device (BYOD) trend accelerates.

IHS iSuppli projected that 655 million smartphones will ship worldwide in 2012, nearly triple the number of notebooks.

This shift in mainstream computing will benefit chip makers like Nvidia and Qualcomm, iSuppli said, which design their processors based on the low-power architectures of U.K.-based chip licensor ARM, making them ideal for use in smaller devices like smartphones. Chip makers like Intel and AMD, however, which build their chips based on x86-based architectures, are struggling to compete in the mobile market.

Meanwhile, PC makers including Dell and HP are also taking a hit as smartphones and tablets rise in popularity. Dell reported in its second-quarter earnings a 26 percent drop in notebook sales, while HP reported in its most recent quarter a 10 percent drop in revenue for its PC business unit.

When asked by CRN when Intel projects its earnings to stabilize, an Intel spokesperson said there is "not all that much" Intel can say beyond its initial statement at this time.