In another gloomy message for the technology sector, Donaldson, Lufkin & Jenrette downgraded shares of Intel on Monday, saying a slowdown in the personal computer business threatens profits of the world's largest chip-maker.
DLJ analyst Charles Boucher said in a research note that PC market growth in the first quarter hasn't been "as robust as earlier indications had suggested."
Additionally, the retail market has become dominated by less-expensive computers and that demand in the corporate PC market is weaker than expected, Boucher wrote. He also cited evidence that demand for chips may be weakening as inventory levels rise.
Boucher cut his fiscal 1999 earnings estimate for the technology bellwether (INTC) to $4.50 a share from $4.65 and fiscal 2000 estimate to $5.30 a share from $5.45. Boucher lowered his 2-month price target to $160 from $175. Intel shares and downgraded the stock to "market perform" from a "buy."
Intel's stock fell 2 7/8 to 117 1/16 on trading volume of 32.1 million shares.
Intel is also being hurt by an accelerated shift in the retail PC market toward computers that sell for less than $1,000. The company has lost market share to rival Advanced Micro Devices (AMD) and National Semiconductor (NSM). Average selling prices are lower in the sub-$1,000 market, which also puts pressure on the company, according to Boucher.
"After surpassing expectations in the previous two quarters, we believe Intel will be challenged to meet consensus expectations in the current quarter and for the year," the analyst said. He noted, however, that Intel may be an attractive stock for long-term investors.
The warning is the latest in a series of bearish brokerage remarks about the PC industry. A handful of analysts last week warned of slowing PC sales, touching off a major sell-off in the tech sector.
On Friday, the negative comments weighed most on Compaq and Micron Technology shares, which took some of the biggest hits.
Also on Friday, the world's largest PC maker, Compaq (CPQ) warned of lower-than-expected demand for its personal computers, The Wall Street Journal reported.
The company said sales for the quarter ending March 31 were running below its projections because of weakness in North America and Europe, which accounts for the bulk of PC sales, the paper also said.
Written By Stephanie O'Brien, CBS MarketWatch