Intel Warning Spooks Markets Sluggish Chip Sales Spark Reaction On Wall Street

A warning by Intel Corp. that its computer chip sales would fall below expectations sent the stock market swooning on Thursday, arousing fears that the long boom in computer sales may be slowing.

But evidence of slack demand was hard to find in the bustling lunchtime crowd at CompUSA in midtown Manhattan.

“We were ready for a nice machine,” said Jay Bevilacqua, who with his wife bought a Packard Bell personal computer, including a modem and printer for $1,600 after nearly a year of research and comparison shopping.

Indeed, the Intel warning late Wednesday, while it sent shivers through the computer industry, was traced less to sagging consumer demand than to temporarily overstocked PC makers. And that took the edge off what initially seemed to signal a slowdown in a key engine of the U.S. economy.

Intel’s chips are the brains in 85 percent of the world’s personal computers, and its sales are seen as a barometer of broader technology trends.

The company’s forecast that it would sell fewer-than-expected microprocessors in the current quarter sent its stock plunging as much as 13 percent and also dragged down other technology stocks. The retreat at one point sent the Dow industrials tumbling more than 130 points.

Nevertheless, “We’re still very bullish on demand,” said Kevin Hause, an industry analyst with International Data Corp. He said that “end-user demand for PCs among consumers and businesses appears to be fairly healthy.”

Hause said he hadn’t changed his forecast for PC sales in the United States growing about 15 percent this year, compared with 19 percent last year.

An Intel spokesman said the company had not yet figured out what was causing slower demand, which mainly hit sales of its older microprocessors.

But several analysts cited overstocked warehouses of PC makers that buy Intel’s chips for use in their machines.

No. 1 PC maker Compaq Computer Corp. early this week told analysts that it was having trouble trimming bloated inventories, part of a long-term plan to cheapen the cost of building and selling PCs.

Like other PC makers, Compaq is trying to dramatically reduce inventories in warehouses so that it can bring new products to market faster and spend less trying to sell out the old products.

Struggling to sell its existing stocks, Compaq had less demand for Intel’s chips. A Compaq spokesman did not return a phone call seeking comment.

The effort to reduce inventories has been encouraged by more frequent chip price reductions by Intel, analysts said.

“Manufacturers are tightening up on their purchasing, knowing that every 30 days there will be a price reduction,” said David Goldstein, president of Channel Marketing Corp., a Dallas-based high-tech market research and consultant firm.

Analysts also said that Intel may have lost sales to rivals who have been more successful in selling cheaper chips used in the hottest part of the PC market - machines costing $1,000 and less.

Intel’s falloff in sales was concentrated in the company’s older and less expensive microprocessors, which are used in the low-cost computers.

However, Intel spokesman Tom Waldrop noted that Intel’s share of this segment has held steady. “We don’t think there’s any loss of our share of that market segment that has anything to do with this revision of our expectations for the quarter,” he said.

Indeed, Advanced Micro Devices Inc., which sells cheaper chips, on Wednesday warned of a loss and said its revenue would decline in the current quarter.

Analysts did cite a seasonal falloff in consumer demand that routinely follows the strong Christmas selling season for computers. They also said that some consumers may be holding off from buying computers because they were waiting for Microsoft’s next major update of its Windows 95 operating system. Windows 98 is due out later this year.

In addition, Intel plans to introduce new chips this year, which could be causing some buyers to wait until the new ones come out.