That hoped-for second-half recovery keeps receding further into the distance for tech stocks.
On Tuesday morning Merrill Lynch analyst Joseph Osha said he expects
June-quarter revenue to stay flat. He scaled back his earlier prediction for a sequential revenue increase.
His new forecast was for sales of $6.76 billion, reducing an earlier estimate of $6.96 billion.
The new numbers are about on par with Intel's first-quarter revenue of $6.78 billion, which was 3% lower than the preceding quarter.
Osha also shaved two cents off his earnings estimate for the year, cutting the forecast to 75 cents, though he didn't downgrade his long-term buy rating on the stock. Merrill has not done recent banking for Intel.
In early afternoon trading, Intel was off 2.3%. The Philadelphia Stock Exchange Semiconductor Index (SOX) was down 1.4%.
Tuesday's downward revision of Intel's earnings follows a somewhat gloomy note from a Goldman Sachs analyst last week speculating that the second half of 2002 could see a "potential pause in the semiconductor cycle." That
report, released Friday, sent chip-equipment stocks tumbling and helped pull the SOX down 3.3%.
Merrill, which had initially held out hope for a second-quarter recovery, still remains more bullish on Intel than the Street, which maintains consensus earnings expectations of 70 cents a share, according to First Call. But the growth thesis is starting to look frayed at the edges.
Osha downshifted his outlook amid mounting evidence of a soft first two months of the quarter. Among the culprits: expectations of flat sequential sales of Taiwanese motherboard and laptop units in May, following a 17% decline in sales in April. Inventory of microprocessors and graphics processors in Taiwan has also crept up since the beginning of May.
Despite the recent weakness in demand, Osha speculated that Intel could see some pick-up in sales in the wake of its widely-anticipated May 26 price cuts on its lineup of Pentium 4 processors. Price reductions, which went into effect Sunday, range from 12% to 53%. "It's possible that demand may have been temporarily capped in anticipation of the cut," he wrote.
Seconding that view, Lehman analyst Dan Niles this morning said low demand for PCs is likely to force down Intel sales. When the company gives an update June 6, it may be forced to nudge revenue guidance towards the low end of the $6.4 billion to $7 billion range it provided earlier, Niles suggested. Niles rates Intel market perform and Lehman has not done marketing for the chip company.
On the plus side, Osha highlighted the potential for gross margin improvement later in the year, as Intel ramps up sales of its 0.13-micron processors.