Intel Plunges 20% in After-Hours Trading on Third-Quarter Revenue Warning

Updated from 4:24 p.m. EDT

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Intel (INTC), the world's leading semiconductor maker, warned late Thursday afternoon that its third-quarter revenue would fall short of forecasts, primarily because of weak demand in Europe.

The warning stunned Wall Street, and Intel's shares plunged 20% in after-hours trading.

The Santa Clara, Calif.-based company said it now expects revenue that is 3% to 5% higher than the $8.3 billion that it reported in the second quarter.

That would result in revenue of $8.549 billion to $8.715 billion. Based on Intel's previous descriptions of market demand and gross margins, many Wall Street analysts had previously expected revenue of around $9 billion.

"Europe sometimes picks up a little later," said Jack Geraghty, analyst for Gerard Klauer Mattison, which has not done underwriting for Intel. He rates the shares buy. "It looks like it didn't pick up quick enough for Intel to make its predictions."

Intel's stock fell $12.60 to $48.88 in after-hours trading, with 11.7 million shares changing hands, according to Instinet. The company made its announcement after the stock market closed. Intel's shares finished regular trading down $1.58, or 2.5%, at $61.48. (Please see related story.

The company said it expects gross margin percentage for the third quarter to be "62%, plus or minus a point, lower than the company's previous expectations of approximately 63% to 64%."

It also said interest "is expected to be approximately $900 million for the third quarter, up from the company's previous expectations of $800 million."

Tom Beermann, a spokesman for the company, declined to speculate on earnings for the third quarter. Analysts surveyed by First Call/Thomson Financial expected earnings of 41 cents a diluted share. Geraghty's model produced that figure, as well as revenue of $9 billion.

Geraghty said he believes demand in Europe is growing now, but he said other chipmakers also may warn of earnings or revenue shortfalls because the demand was slow for too long. Intel mostly supplies the PC business, he noted.

Last week, SCI Systems(SCI), a Huntsville, Ala.-based electronic components maker, cautioned investors that it expected first-quarter earnings to fall below the 17-analyst estimate of 38 cents a share. The company attributed the shortfall to a seasonal slowdown in consumer electronics sales and softer demand for personal computers.

"From an Intel perspective, it looks confined to Europe," said Dan Scovel, analyst for Needham & Co., referring to PC demand. "It could be a market share shift to AMD. Maybe they're making a big run in Europe."

Scovel rates shares of Advanced Micro Devices(AMD) a strong buy and rates Intel shares a hold.

John Greenagel, a spokesman for AMD, declined to comment.

For investors, a pattern seems evident, Geraghty said: "You make most of your money in technology from October through March."

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