Intel's weak outlook, spending hikes unnerve Wall Street

Thu Jan 17, 2013 6:07pm EST
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By Noel Randewich

SAN FRANCISCO (Reuters) - Intel Corp's current-quarter revenue forecast disappointed Wall Street, while a sharp rise in planned 2013 capital spending unnerved investors who expect personal computer demand to dwindle.

Shares of the world's leading chipmaker slid more than 5 percent after it projected 2013 capital spending at $13 billion - plus or minus $500 million - exceeding many analysts' estimates for about $10 billion.

Intel said $2 billion of its increased spending would go toward expanding a facility for researching future manufacturing technology. But some analysts worried that expanding too quickly may create excess capacity that could hurt the bottom line if it has to idle plants.

"People are starting to freak out about the capex," said Sanford C. Bernstein analyst Stacy Rasgon. "They are making the bet this year and hoping for a big revenue lift in 2014. If you think that PCs are not growing that much anymore, then what's going to drive it?"

"The concern is that if I spend a lot of money and I build up my factories, I don't have enough demand to fill them, they have very high fixed costs, and it pulls your margins down," Rasgon said.

Outgoing Chief Executive Paul Otellini, who plans to retire in May after a successor is identified, said the investment in manufacturing would suppress costs in the long run.

"The leading edge capacity is the lowest cost for us on a per unit basis," Otellini told analysts on a conference call. "Regardless of what you think the size of the market is, the leading edge fabs are the single greatest asset that we have."

Otellini said the higher capex is not intended to bankroll a foundry or contract chipmaking business. But he did not rule out manufacturing semiconductors for other chip companies - as long as that did not empower a rival.   Continued...

Showgoers visit the Intel booth on the first day of the Consumer Electronics Show (CES) in Las Vegas in this January 8, 2013, file photo. REUTERS/Rick Wilking/Files