Weakening economy catches up with Intel

Intel cut its revenue outlook for the third quarter based on weak demand for consumer PCs. The weak U.S. economy, which grew at only 1.6 percent in the second quarter, finally caught up with Intel, which had been posting record results this year.

That bodes ill for the tech industry, since Intel is the world’s biggest chip maker and is a bellwether for computer sales. The Santa Clara, Calif.-based company said that third-quarter revenue will be $11 billion, plus or minus $200 million. That’s down from its previous outlook of $11.2 – $12 billion. Wall Street analysts had been expecting revenue of $11.52 billion with earnings of 53 cents a share for the third quarter ending Sept. 30.

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It has been a kind of slow-motion slowdown. Intel’s sales started getting a boost last fall with the launch of Microsoft’s Windows 7 operating system, which raised consumer demand for PCs. Then, sales of enterprise PCs and servers took off as corporations began a long-postponed refresh cycle for replacing old computers. But the turmoil in Greece led to a slowdown in Europe and now the U.S. economy has begun to sputter this summer. For Intel, that’s like gravity pulling it back down to earth.

Intel specifically blamed weaker-than-expected demand for consumer PCs in mature markets. Inventories are in line with the company’s revised expectations. Gross profit margins, a measure of efficiency, will be 66 percent, down from the previous 67 percent that Intel projected. Enterprise demand remains solid. Previously, on its second-quarter earnings call on July 13, Intel said that demand was strong.

Wall Street analysts have been downgrading their forecasts recently. Back-to-school demand was weak, according to Barclay’s Capital analyst Tim Luke. It will be interesting to see if tablet computer sales start to weaken laptop sales. Smartphone sales could have the same effect on PC sales.

Intel’s stock price is up 1.43 percent to $18.44 a share. That may be due to Ben Bernanke’s comments about his intentions to boost the economy more, as well as the fact that Wall Street has been expecting a weak market and has already factored that into Intel’s price.