Intel, IBM see sales stall as Europe crisis crimps orders

Written by Bloomberg | San Francisco | Updated: Apr 19 2012, 07:44am hrs
Intel and International Business Machines, two of the computer industrys biggest bellwethers, posted the slowest sales growth in years as the European slump weighed on orders last quarter.

IBMs revenue climbed 0.3% to $24.7 billion in the period, while Intel sales rose 0.5% to $12.9 billion. That was the smallest increase for either company since the third quarter of 2009, when the US economy was just emerging from recession. Even so, Intel predicted a pickup in sales for the current quarter.

The two technology giants are seeking growth in emerging markets while coping with a slowdown triggered by the European debt crisis. The personal-computer market, which contracted in the US last year for the first time since 2001, also is hurting demand for Intels processors. IBM, meanwhile, is more focused on expanding earnings per share, rather than pursuing less-profitable orders.

All else being equal, youd rather see top-line growth, said Toni Sacconaghi, an analyst at Sanford C Bernstein & Co. in New York. Still, he said, most investors are looking more closely at profit than sales. IBM has conditioned investors to focus on EPS growth. Thats how it provides guidance.

Intel also forecast narrower profit margins than analysts had anticipated, spurring a stock decline of as much as 3.3% to $27.53 in extended trading. IBM dropped as much as 2.7% to $201.80.

Intels gross margin, or the percentage of sales remaining after deducting costs of production, will be about 62% in the second quarter, Intel said on Tuesday in its earnings report. Analysts had projected gross margin of 63.5% on average, according to data compiled by Bloomberg.

Intels costs are rising as it overhauls older plants and builds new ones. The company expects to recoup that investment when the factories reach full output, and Intel is sticking to its gross margin forecast of 64% for the year.

The whole story of Intel in the past two years has basically been margins, said Daniel Amir, an analyst at Lazard Capital Markets LLC in San Francisco. For the first time, theyre kind of missing the margin target by more than a percent.