Intel warning sends tech shares into tailspin

Intel's gloomy profit warning sent tech shares into a tailspin in US trading late last week.

Intel's gloomy profit warning sent tech shares into a tailspin in US trading late last week.

The chip giant's warning - related to lower-than-expected demand for its products in Europe - capped a difficult period for the markets and sparked a downturn for a number of high-profile IT vendors.

Intel's third-quarter profit warning didn't come as a surprise to some analysts. Linley Gwennap, principal analyst at the Linley Group, said he expected the vendor might fail to meet third-quarter expectations for some time. On top of the European issue, he added that the chip maker also faltered slightly in Asia. "Motherboard shipments out of Taiwan have also been lower than expected," Gwennap said. Intel's stock dropped more than 20% in after-hours trading Thursday.

During PC vendor Dell Computer's DirectConnect conference in Austin, Texas Friday, a top Intel executive reiterated the reasons for the company's expected third-quarter revenue shortfall.

"Demand in Europe has been less than expected" said Sean Maloney, Intel senior vice president and director of its sales and marketing group. He added, however, that the problems in Europe wouldn't force Intel to change its strategy on the continent. "We have no plans to scale back production in Europe," he said.

Shares of Intel fell dramatically Friday, closing down over 21% at $US48.43 per share.

Shares of the vendor's rival Advanced Micro Devices also plunged Thursday following the Intel profit warning. AMD's shares fared better Friday, however, rising just over 5% to $25.25.

Also affected by the news, Dell -- a company which single sources its chips from Intel -- dropped harshly in after-hours trading Thursday and then fell again Friday over 4% to close at $36.09 per share.

Houston, Texas-based Compaq Computer who uses chips from both Intel and AMD, moved only slightly on the Intel news. The PC maker actually gained ground Friday closing up almost 7 percent to $29.75 per share.

While Intel's difficulties were responsible for pulling down a number of PC-related vendors' shares Friday, tech players in a variety of markets also found Wall Street to be a difficult place this week.

Apple Computer (AAPL) released a slew of new products in recent weeks but saw its stock struggle throughout the week due, in part, to suggestions that there might be a sales transition period as users forsake the older products for the latest releases. Shares of Apple fell more than 7 percent Thursday. A similar story played out Friday when the vendor lost more than 9% at one point and saw its shares to close down at $52.93.

MP3.com experienced trouble of a different sort Thursday when the music distribution site saw its shares dip 8%. The company suffered a series of setbacks during the week, including two more class-action lawsuits filed against the vendor by law firms Cauley & Geller LP of Boca Raton, Florida, and Wechsler Harwood Halebian & Feffer of New York. The firms charged the vendor with misrepresenting financial data. Shares of MP3 have struggled throughout the company's legal battles with the music labels for alleged copyright violations. MP3 stayed even Friday at $3.93 per share.

Sprint PCS said Wednesday that a higher than expected number of users abandoned the company's cell phone service in the third quarter. Shares of the wireless carrier dropped 19% Wednesday down $7.81 per share. Sprint will likely add around 100,000 less users than expected in the fourth quarter.

Other cell phone players, Nokia and Ericsson, followed suit Thursday. Both companies lost around 5% during the trading day.

Investors, however, seemed only mildly concerned with the news as all three mobile players fared better Friday. Sprint sunk slightly to $28.25, while Nokia and Ericsson made strong recoveries both climbing more than 6% on the day. Nokia closed up $3.62 to $43.50 per share and Ericsson made $1.01 per share up to $17.43 Friday.

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