Originally created 05/31/97

Intel forecasts lower-than-expected profits



NEW YORK (AP) - Intel Corp., the world's largest maker of computer chips, shocked Wall Street today by predicting its second-quarter results would be weaker than expected, sending its stock into a tailspin.

Intel cited surprisingly weak demand for its microprocessor chips, which are the "brains" in 85 percent of all personal computers. It said that both profits and revenues would be hurt by slow sales, particularly in Europe.

Investors' reaction was swift. Intel's stock initially tumbled 14.5 percent in morning trading on the Nasdaq Stock Market. The plunge pulled other high-technology shares sharply lower and sent the broader market nosediving as investors fretted that Intel's prediction of slowing demand for computers would erode profits at major computer makers.

But a closer look at Intel's situation reassured some Wall Streeters. Intel stock recovered more than half its loss by mid-afternoon, down 6.5 percent, or $10.64 at $153.12«. Major stock indexes also edged back.

While Intel saw a fall-off in sales for computers running on its old Pentium chips, it was overwhelmed by demand by consumers and businesses for its new MMX technology, which boost computers' ability to run video, sound and pictures, said Scott Randall, a financial analyst with Soundview Financial Corp.

The Santa Clara, Calif.-based Intel rushed to switch over its factories to the new chips but couldn't keep up, he said. The strong demand bodes well for Intel's future, he said.

"It's kind of a high-class problem to have," Randall said. "The new products are being embraced by the market faster than they thought."

Analysts had expected Intel to report flat to slightly higher revenue in the second quarter compared to first-quarter revenue of $6.4 billion. Intel said that it now expects revenue to drop 5 percent to 10 percent, or as far down as $5.76 billion. Compared to the second quarter of 1996, the revenues would be up by as much as 48 percent.

Intel also predicted a drop on what it makes on its chips, saying gross profit margins would be down from 64 percent in the first quarter. For the full year, Intel said its margins would be about 60 percent. And the company's expenses are rising by as much as 9 percent above the $1.3 billion spent in the first quarter.

However, Intel said that its newer chips, including its Pentium processor with MMX technology - enhancing multimedia applications - and the new Pentium II processor are drawing strong demand.

On another front, Intel rival Cyrix Corp. announced a new microprocessor that it said offered performance rivaling or beating several of Intel's key products but at a far lower price. Cyrix's stock was up 17 percent by early afternoon, rising $3.75 to $25.75 on the Nasdaq Stock Market.