Intel cuts revenue forecast as desktop demand weakens

By Anya George Tharakan and Sai Sachin R

(Reuters) - Intel Corp (NasdaqGS:INTC - News) slashed nearly $1 billion from its first-quarter revenue forecast as small businesses put off upgrading their personal computers, sending the chipmaker's shares down more than 5 percent.

Fewer companies than Intel had expected replaced desktop PCs running on outdated Microsoft operating systems, leading to weak demand for its chips. Intel also cited "challenging" macroeconomic and currency conditions, particularly in Europe.

"The macro environment is not robust enough for people to upgrade their PCs the way they normally would," Topeka Capital Markets analyst Suji De Silva said.

Intel said on Thursday that it expected first-quarter revenue of $12.8 billion, plus or minus $300 million - about 7 percent lower than its earlier forecast of $13.7 billion, plus or minus $500 million.

Though dominant in the market for chips used in PCs, Intel has been slower than rivals such as Qualcomm Inc (NasdaqGS:QCOM - News) to adjust in recent years to the growing popularity of smartphones.

When Microsoft Corp (NasdaqGS:MSFT - News) wound down support for its Windows XP operating system last April, Intel had expected a bounce in demand from small- and medium-sized businesses. But this has not happened.

Businesses and consumers are taking an "if it ain't broke, don't fix it" attitude to their old PCs, Summit Research analyst Srini Sundararajan said.

According to BlueFin Research Partners, 75 million-76 million PCs will be shipped worldwide in the first quarter, a decline of 8-9 percent from the preceding quarter.

Intel, whose historic "Wintel" alliance with Microsoft once delivered breathtakingly high profit margins, has been trying to offset the impact of slower PC upgrades by making chips for devices such as "2-in-1s", which function as both laptop and tablet.

Intel said the mid-point of its gross margin range would remain at 60 percent, plus or minus a couple of percentage points.

Intel's shares were down 4.8 percent at $30.76 in late afternoon trading on the Nasdaq. Microsoft's shares were down 2.4 percent at $41.

Shares of ASML Holding NV (NasdaqGS:ASML - News), the world's largest maker of semiconductor production equipment, were down 2 percent at $104.40.

(Story refiled to correct paragraph 5 to say "smartphones", not "laptops and tablets")

(Editing by Don Sebastian, Robin Paxton and Kirti Pandey)