Shares in Intel Corp., the world's largest microchip maker, tumbled nearly 20 percent on Friday, a day after the company cut its second-quarter revenue outlook beyond investor expectations, dimming hopes for a recovery in the beleaguered technology industry any time soon.

"Intel yanked the rug out from under the optimists yesterday with a weak revenue outlook and a surprisingly low gross margin target for the second quarter," Merrill Lynch analyst Joe Osha wrote.

Intel shares fell $5.00, or 18.5 percent, to $22.00, on Nasdaq, and during the day touched $21.70, their lowest level since October. Shares of rival Advanced Micro Devices Inc., fell $0.80, or 7.5 percent to $9.81 on the New York Stock Exchange.

Intel's revised outlook caused a decline in the broader market. The Nasdaq composite index fell 1.25 percent and the Philadelphia Stock Exchange Semiconductor Index dropped almost 3 percent.

Intel, known for its Pentium microprocessors that are the brains of most personal computers, said on Thursday during a mid-quarter conference call that it expected second-quarter revenue of $6.2 billion to $6.5 billion, compared with its April forecast of $6.4 billion to $7.0 billion.

Intel said its gross profit margin will be 49 percent, far less than the 53 percent, plus or minus a couple of points, it had forecast in April. Intel also said it still expected "a seasonally stronger second half."

"With (information technology) purchases remaining highly scrutinized, our belief is that spending recovery in the second half is highly unlikely," said Ashok Kumar, an analyst at U.S. Bancorp Piper Jaffray in a note to clients. "With a weak back-to-school season, we do not expect to see signs of seasonality until the latter part of the September quarter."

News source: Reuters - Intel Shares Tumble on Lowered 2nd-Quarter Guidance

OTHER CHIPS FALL

Shares of other chip companies and chip-equipment companies also declined. Applied Materials Inc. stock fell 30 cents, or 1.4 percent, to $20.62, STMicroelectronics stock fell $0.79, or 3.2 percent, to $23.85, and Texas Instruments Inc. fell $1.29, or 4.7 percent, to $26.40.

Wall Street analysts reacted to the new guidance quickly, with brokerages, including J.P. Morgan, Credit Suisse First Boston and Salomon Smith Barney, lowering either their ratings, earnings estimates or price targets on the Santa Clara, California, company.

Andy Bryant, Intel's chief financial officer, said on a conference call Thursday that demand from corporate customers hasn't picked up. There have been expectations for a rebound in demand in the second half of the year, but it's clear now that any such recovery will be labored, analysts said.

Before the update, analysts expected the company to post a second-quarter, profit of 15 cents a share, with a range of 14 cents to 17 cents, on revenue of $6.67 billion, according to research firm Thomson First Call.

Now, analysts expect Intel still to earn 15 cents a share on average, but within a wider range of 10 cents a share to 17 cents a share, according to First Call.

Analysts from J.P. Morgan and Robertson Stephens cut their ratings on the stock to "market perform" from "buy."

J.P. Morgan analyst Eric Chen said that the lack of major product introduction in the second half of the year and customer's apparent reluctance to react to price cuts are likely to result in a relatively weak second half of the year.

As spring gives way to summer, analysts are increasingly saying that much of the demand for semiconductor companies in the first quarter was due to inventory replenishment.

Now that inventories have been restocked in the PC industry and other parts of the high-tech sector, orders will be driven by end demand.

"We continue to believe that as Intel, along with the rest of the semiconductor industry, enters the summer, the inventory benefits will subside and semiconductor revenues will revert to tracking end-demand revenues for various industries (PC, handset and networking)," wrote analyst Dan Niles of Lehman Brothers.

Niles lowered his second-quarter revenue estimate to $6.35 billion from $6.7 billion and his earnings-per-share estimate to 11 cents a share from 15 cents.


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