Intel shares drop on fears of PC downturn

Intel shares dropped 9 per cent in after-hours trading on Tuesday as the market took fright at fourth-quarter numbers that fell short of expectations and suggested a dip in demand for desktop computers.

The biggest semiconductor maker also forecast slower growth in 2006 than the past three years, saying this was in line with industry forecasts and the overall economy.

Paul Otellini, chief executive, announced Intel was abandoning mid-quarter updates because they were “increasingly irrelevant” to the company’s long-term growth.

He reported fourth-quarter sales of $10.2bn and profits of 40 cents a share. Analysts’ expectations were for $10.56bn in revenues and earnings per share of 43 cents, according to Reuters Estimates.

The company said revenues were below expectations stated in its mid-quarter update of $10.4bn-$10.6bn. This was primarily because of lower than expected desktop processor unit shipments and prices.

“2005 was a good year punctuated by a difficult December,” Andy Bryant, chief financial officer, said.

Intel shares fell $2.30 to $23.22 on the news.

“I don’t think this is market share [loss] but some inflection in demand for PCs,” said Apjit Walia, semiconductor analyst at RBC Capital Markets. “This will worry people, Intel is the canary in the coalmine, when it sees weakness it’s a warning for the rest of the sector.”

Intel could have fallen short by losing market share in desktop processors to its rival Advanced Micro Devices, which reports fourth-quarter results on Wednesday.

Mr Otellini said Intel gained market share in the first half and lost some in the second half. He predicted Intel would take back share in 2006.

For 2005, Intel said it achieved record revenues of $38.8bn, up 13.5 per cent on 2004’s $34.2bn. Net profits grew 19 per cent to $8.7bn.

“2005 was our third consecutive year of double-digit revenue and earnings growth, leading to the best operating results in the company’s history,” Mr Otellini said.

Intel said it expected revenue to be 6-9 per cent higher in 2006 and that capital spending would be about $6.9bn as it began building new factories in Arizona and Israel.

It expected revenues to fall 8 per cent sequentially in the first quarter to $9.1bn-$9.7bn. This is more than is seasonally normal and Intel blamed a build-up of inventory at its customers in the fourth quarter.