The picture remains bleak for chipmaker

Intel

(INTC) - Get Report

, which after

warning Thursday that revenue would fall short of expectations for the first quarter said the economic outlook hasn't yet improved.

While still maintaining some optimism that the year's second half would improve, officials, when queried on a conference call, couldn't point to any signs that show an improvement in demand, as the slowdown has spread from the PC sector to the networking, communications and server sectors.

"The answer is no," said Andy Bryant, chief financial and enterprise services officer, when asked about whether a recovery is evident. "It's a real tough economy to look at and make a guess right now. We've had a pretty disappointing first quarter. We expected a pickup in the second half of the quarter and haven't seen it. You come in one day and see two positive signs and the next day three negative signs."

The company said it expects first-quarter revenue to fall 25% from the fourth quarter, down from the

15% drop originally expected. The company reported revenue of $8.7 billion in the fourth quarter, which would put first-quarter revenue somewhere in the neighborhood of $6.5 billion, well short of the $7.4 billion expected by analysts, according to

First Call/Thomson Financial

. The chipmaker didn't elaborate on its earnings expectations. Analysts had expected it would earn 21 cents a share.

In addition, the company's profit margins are taking a significant hit due to factory start-up costs and the overhang of inventories, which officials said were higher than normal for the company's networking and flash-memory chips. First-quarter gross profit margins will slide to 51% from the previously forecast 58%. But Intel said it was making progress in cutting costs, adding that first-quarter expenses would drop about 15% from fourth-quarter levels. Intel had earlier forecast that first-quarter costs would be roughly flat with the fourth quarter.

More important than inventories, however, is the demand issue, according to Sean Maloney, Intel's director of sales and marketing. Inventory management has improved over the last few years due to technological advances, Maloney stated, and he was frank in saying that the chief issue, regardless of inventory overhang, is demand from the various facets of the business, especially in the telecommunications and server businesses.

Maloney said the PC business alone wouldn't have caused the company to preannounce -- but the weakness in telecommunications did. He said some telecommunications companies have canceled orders and others have postponed orders.

"The demand isn't where we want it to be," said Maloney. "That really is the message here."

What also emerged from the comments by Intel officials was that the global picture is worsening, based on their assessment that telecom demand has slowed markedly. "They're obviously telling you that Europe is worse, and that Asia is a problem too," said Dan Niles, semiconductor analyst at

Lehman Brothers

.

While the company didn't discuss earnings estimates, Niles said prior to the conference call that through quick calculations he figures the company will earn 12 cents to 13 cents per share. Earlier in the week, Niles had lowered his first-quarter earnings estimates for Intel to 19 cents a share from 21 cents a share. (Lehman hasn't done recent underwriting for Intel.)

"This thing is going to drag on for a while. Don't expect a V-shaped recovery," Niles said, using a term describing a sharp decline in demand, and then a fast recovery, something investors have been clinging to in recent months.

Regardless of sagging profits, Intel hardly altered its spending outlook, meaning it plans to try to spend its way out of the current malaise. The company's

plan to use $7.5 billion for capital spending in 2001 remains unchanged, and research and development spending was revised down by $100 million, to $4.2 billion for the year, from $4.3 billion.

This is the third straight quarter Intel has warned it will fall short of analysts' expectations. Intel cut expectations for the third and fourth quarters last year as well.

In after-hours trading on

Island

, the stock was changing hands at $30.63 after finishing regular trading up 31 cents at $33.25. The company is expected to report earnings April 17.