Intel's weak outlook, spending hikes unnerve Wall Street

SAN FRANCSCO: Intel Corp forecast quarterly revenue that disappointed Wall Street and a sharp increase in capital spending it plans for 2013 unnerved investors already concerned about slow demand for personal computers

Shares of the world's leading chipmaker slid more than 5 percent in after-hours trade after it projected this year's 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 expenditures would go toward expanding a facility for researching future manufacturing technology. Some analysts worried that with PC sales already slow, expanding too quickly may create excess capacity that could hurt the bottom line.

"People are starting to freak out about the capex," said Sanford C. Bernstein analyst Stacy Rasgon. "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."

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

Intel has agreed to manufacture custom chips on behalf of networking equipment company Cisco Systems Inc, Bloomberg reported. An Intel spokesman declined to comment. In the fourth quarter, Intel's revenue was $13.5 billion, compared with $13.9 billion a year earlier. Analysts had expected $13.53 billion.

It estimated first-quarter revenue of $12.7 billion, plus or minus $500 million. Analysts expected $12.91 billion. Intel is used to being king of the personal computer market, particularly through its historic Wintel alliance with Microsoft Corp, which has led to breathtakingly high profit margins and an 80 percent market share.

But it has struggled to adapt its technology for smartphones and tablets, a market dominated by Qualcomm Inc, Samsung Electronics Co Ltd and Nvidia Corp. PC makers are struggling to stop a decline in sales as consumers hold off on buying new laptops in favor of more nimble mobile gadgets.

Microsoft's long-awaited launch of Windows 8 in October brought touchscreen features to laptops but failed to spark a resurgence in sales that Intel and many PC manufacturers had hoped for.

Intel's hefty investment plans reflect its confidence in the future, even as Wall Street worries about the chipmaker's struggle to gain traction in the mobile market. "Our core advantage really is our manufacturing leadership," Chief Financial Officer Stacy Smith said. "450 will give us a significant cost advantage relative to others."

Intel is expanding its research fab in Hillsboro, Oregon, to develop technology for manufacturing chips on 450 mm silicon wafers, a complicated step up from the current 300 mm wafer standard.

Larger wafers can translate into big savings because more chips can be etched onto each of them. But building 450 mm plants is expected to be so expensive that only a few industry leaders, including Intel, Samsung Electronics and TSMC, are expected to have the necessary scale.