Intel's weak outlook for fourth-quarter revenue and margins dispelled lingering hopes for a revival in PC demand towards the end of the year, pushing its shares 2 per cent lower.
Intel, along with rival Advanced Micro Devices, had previously warned of weak demand for PCs, hit by a troubled global economy and the growing popularity of tablets like Apple Inc's iPad, once dismissed as a niche device but now leading a fundamental shift in consumer computing.
Intel's corporate-focused server and data centre business has helped offset weak PC sales in recent quarters, but in the third quarter, revenue from that division also disappointed.
"You have to remember, data centre has been the rock we've all leaned on," said Patrick Wang, an analyst at Evercore Partners.
"It's a reflection of enterprises and companies rationalizing their year-end spend."
With economic growth slowing in China and struggling in Europe and the United States, global PC shipments are expected by analysts to decline slightly this year, the first annual drop since 2001.
Intel said the data centre business, which sells server chips and other equipment to companies and governments, grew 6 per cent year over year in the third quarter, although it was down 5 per cent from the prior quarter.
Profitability will also take a hit, as Intel idles excess capacity at its plants in an effort to reduce inventories of its processors.
It foresees fourth-quarter gross margins of 57 per cent, or 58 per cent on a non-GAAP basis, both plus or minus a couple of percentage points.
Analysts on average expected gross margins of about 62 per cent for the current quarter.
Chief financial officer Stacy Smith told analysts on a conference call that about two-thirds of the anticipated decline in margins will come from excess capacity charges.
"We were putting in capacity for a bigger second half (of 2012) than we got. We're going to now make adjustments so that we can move capacity to 14-nanometer and bring our inventory levels down," Ms Smith said.
Intel's 14-nanometer manufacturing technology is its most-cutting edge.
Shares of Intel fell to $22.35 in after hours trade, after closing up 2.85 per cent at $22.35.
Reuters
