Intel lowers Q3 revenue estimates

Citing lower than expected product sales, Intel Corp. on Thursday lowered its revenue expectations for the third quarter of its 2004 fiscal year, which ends on September 25.

The chip maker now expected revenues between US$8.3 billion and US$8.6 billion. Previous company guidance had placed revenue expectations between US$8.6 billion and US$9.2 billion.

The reduced expectations are due to lower than expected worldwide demand for Intel's processor products as well as "customer reductions in component inventory levels," the company said in a statement. Intel also experienced lower than expected growth in flash memory shipments, the company said.

"Our current outlook for the third quarter, and the remainder of the year, reflects a weaker market than we had expected," said Andrew Bryant, Intel's chief financial officer.

The weakness was not confined to any specific geographic region, he said. "Our view of this market change is that it is modest in scope and worldwide."

Part of the shortfall was due to a "lackluster" response to the company's Aug. 22 price cuts, as well as weakness in the consumer technology market where back-to-school sales have fallen short of expectations, Bryant said.

"July was actually pretty comfortable," he said. "What happened was the response after the price move was less than expected ... as we talk to our customers, you don't get the same sense right now of momentum building in September that you would typically get this time of year."

Flash memory shipments were lower than expected, "primarily due to weakness in our cellular and (consumer device) market segment," Bryant said.

Though the worldwide demand for processors is growing, Intel is going to have to become a more nimble company in order to continue to develop the new types of products that will ensure its dominance over the next decade, said Gordon Haff, an analyst with industry research firm Illuminata. "Intel has been very successful at business as usual: turning the crank on gigahertz volumes and process technology," he said.

Intel will need to prove that it can develop products for devices such as game consoles, personal digital assistants, and smart phones, Haff said. "There's going to be more rapid change in more different areas in the next ten years than there has been in the last ten for Intel," he said.

At present, the company's ability to quickly adapt to new markets and bring product to market without delay is under scrutiny from analysts.

Intel has been plagued by manufacturing delays over the past year, which prompted the company's chief executive officer, Craig Barrett, to issue a July memo warning employees to change their ways.

"There are many reasons for these (product delays and manufacturing issues)," wrote Barrett. "In the end, the reasons don't matter because the result is less-satisfied customers and a less-successful Intel."

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