Intel Sees Credit Crisis Hitting Chip Industry
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Intel warned on Friday the credit crisis could hurt demand for its chips, and lead to the insolvency of key suppliers that could result in product delays.
The world's largest chip maker noted these new economic risks in its 10-Q quarterly report filed with the U.S. Securities and Exchange Commission. Intel (NASDAQ: INTC), which makes 80 percent of microprocessors that power personal computers, gave no new financial forecasts, saying it would publish a mid-quarter update on Dec. 4.
"Current uncertainty in global economic conditions poses a risk to the overall economy as consumers and businesses may defer purchases in response to tighter credit and negative financial news, which could negatively affect product demand and other related matters," Intel said in the third-quarter filing. These comments were not in its second-quarter filing.
"There could be a number of follow-on effects from the credit crisis on Intel's business, including insolvency of key suppliers resulting in product delays," it said.
Other risks include the inability of customers to obtain credit to finance purchases of Intel products, as well as Intel possibly facing its own difficulties in obtaining short-term financing from the issuance of commercial paper.
When Intel reported third-quarter results in mid-October, it provided investors with wider-than-usual forecast ranges for the fourth quarter due to uncertainties about the global economy.
Intel had forecast fourth-quarter revenue to be between $10.1 billion and $10.9 billion, which it said was weaker than typically seen in the period running up to the year-end holiday season.
Intel said on Friday that while its inventory levels are currently appropriate, economic uncertainty may result in lower-than-expected demand and force the company to write-off excess inventories, thereby hurting its gross margin.
It noted that some customers are building inventory, but "with the current macroeconomic environment, it is hard to discern what demand will be for the fourth quarter of 2008." Intel, the industry's biggest investor in the next generation of chip production equipment, had previously trimmed its capital spending plans modestly for 2008 to $5 billion, plus or minus $100 million, from $5.2 billion previously.
Shares of Intel were trading up 0.8 percent at $16.31 at press time.