Intel Corp issued a warning on Friday that second quarter revenues and net income will fall below the company’s expectations, sending shares sharply down. The slump is attributed to weaker than anticipated demand for the company’s Pentium processors, especially in Europe, the usual scapegoat market for American technology firms. In April, Intel said it expected revenue for the second quarter to be flat to slightly higher than the $6.4bn it reported for the first quarter (CI No 3,140). Now the chipmaker expects a decline of 5% to 10%. As reported in April, gross margin for the second quarter is also expected to be down from 64% last time, as expenses climb 7% to 9% from $1.3bn. Interest and other income is still targeted at $170m for the quarter. The shift in demand from older generation chips to Pentiums with MMX technology and the new Pentium II is the main reason for the glitch in sales, according to Intel. A spokesperson said that although demand for the new chips is very strong and manufacturing capacity hasn’t proven to be as big a problem as previously thought, the volumes are still a small percentage of overall sales, and the transition won’t happen overnight. Wall Street was expecting second-quarter net income equivalent to $2.16 per share, down slightly from $2.20 in the first quarter. Analysts at Morgan Stanley & Co cut their rating on Intel shares to outperform from strong buy, while Alex Brown and Sons Inc cut the stock to buy from strong buy. Merrill Lynch & Co maintained its near and long-term buy rating. Morgan Stanley’s revised estimate for 1997 is $8.20, down from $8.90. In trading Friday, Intel shares closed down $12.265, or 7.49% at $151.50. In activity before the bell they had sunk as low as $145.50. Other technology stocks followed Intel’s lead, helping push the Dow Jones Industrial Average down more than 40 points and the Nasdaq average down more than 20.
