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Intel Cuts Revenue Forecast On Slower PC Sales

Expected gross margins for the third quarter were lowered a point, to 66%, by the chipmaker along with a revised revenue projection of 11 billion.
Intel on Friday cut its third-quarter revenue forecast because of lower-than-expected sales to manufacturers of consumer PCs. The chipmaker said revenue is likely to be $11 billion, plus or minus $200 million. Intel's previous forecast was between $11.2 billion and $12 billion.

"Revenue is being affected by weaker than expected demand for consumer PCs in mature markets," Intel said in a statement. "Inventories across the supply chain appear to be in-line with the company's revised expectations."

The company also lowered its expected gross margin for the quarter to 66%, plus or minus a point. Intel had forecast 67%, with the same variable. A bigger drop in gross margin was avoided by slightly higher average selling prices for processors sold to businesses. Intel described corporate sales as "solid." Investors appeared to take the news in stride. Intel shares in afternoon trading on the Nasdaq stock exchange were up about 1.5% to around $18.50. Intel is scheduled to release third-quarter earnings Oct. 12.

The possibility of weaker processor sales in the third quarter was predicted last week by IDC in its quarterly report on the PC processor market. While the first half of the year saw a strong global market in terms of shipments and revenue, the analyst firm observed weakening demand in the second quarter. The market was expected to remain weak in August.

IDC found that contract manufacturers working for major computer makers were cutting orders for processors and other components. "While the PC processor vendors re-iterated their solid outlook during their most recent earnings calls, the softness we've seen ultimately makes us concerned for end demand's pull on processors," IDC analyst Shane Rau said.

The fact that Intel is seeing slower-than-expected sales of consumer PCs in mature markets, such as the United States, could be attributed to the anemic job growth in the slow economic recovery. However, as seen by the latest numbers from IDC, businesses continue to spend on replacing older PCs that they held on to during the economic recession.

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