Intel Corp. cut its third-quarter revenue estimate on Friday and withdrew its full-year forecast amid a decline in demand for its chips as customers reduce inventory and businesses buy fewer personal computers.
A revision of targets had been anticipated by many analysts after competitors such as Hewlett Packard and Dell Inc warned of slow demand for PCs last month, a development that has been compounded by a shaky global economy and consumers shifting toward tablets and smartphones.
But the cut by Intel, the world's largest chipmaker, was much more severe than analysts had expected.
The company said it now expects third-quarter revenue of $13.2-billion (U.S.), plus or minus $300-million, down from its previous forecast of $13.8-billion to $14.8-billion.
Analysts on average expected $14.2-billion. Intel is due to report its third-quarter results in October.
Bernstein analyst Stacy Rasgon said the magnitude of the warning was surprising, adding that it was a worrying new sign that Intel is seeing weakness in PC sales to businesses and governments, known as enterprise sales.
"They also have weakness in enterprise PCs in emerging markets. In the last six to eight quarters, consumers have been weak but the enterprise was strong. Now the enterprise is weak," he said.
Intel's warning comes at a time when PC makers should be gearing up to build more computers than usual ahead of the launch of Microsoft Corp.'s Windows Phone 8 operating system.
Intel has been banking on the Windows 8 release in October to help slow the trend of consumers buying smartphones and tablets instead of personal computers.
While a major Windows release normally boosts computer sales, MKM Partners analyst Daniel Berenbaum said it might not help as much this time.
Along with concerns about consumer demand being hurt by the weak economy, Mr. Berenbaum said PC makers are reluctant to build up a lot of inventory because they are not sure whether notebooks or tablet computers will sell best.
"You're trying to decide are people going to buy convertible form factors, a tablet that slots into a keyboard, or are they going buy traditional notebooks or ultrabooks," he said.
"In the absence of knowing what to sell, there's a clear reluctance to build any sort of further inventory."
Intel's processors are used in 80 per cent of the world's PCs, but the Santa Clara, California, company has been slow to adapt its chips for smartphones and tablets and now trails Qualcomm Inc and Samsung Electronics Co Ltd , which design their chips using power-efficient technology licensed from ARM Holdings Plc.
Intel, Advanced Micro Devices and others in the PC industry have been hit by a shaky global economy and consumers shifting toward tablets and smartphones.
Intel lowered its full-year revenue forecast in July, saying consumer spending in Europe and the United States had been weaker than it expected.
The company on Friday also said full-year capital spending is expected to fall short of its previous forecast of $12.1-billion to $12.9-billion.
Intel withdrew all other quarterly and full-year forecasts.
It expects gross margin of 62 per cent for the third quarter, plus or minus one percentage point, down from its previous expectation of 63 per cent, plus or minus a couple of percentage points.
Williams Financial Group analyst Cody Acree said the outlook is in line with what he would have expected after AMD forecast third-quarter revenue below expectations in July.