Intel Says Credit Crisis Could Hurt Business

NEW YORK (Reuters) – Intel Corp (INTC.O: Quote, Profile, Research, Stock Buzz)warned on Friday the credit crisis could hurt demand for its chips, andlead to the insolvency of key suppliers that could result in productdelays.

Shares of Intel fell 1.5 percent in pre-market trade, after theworld’s largest chip maker noted these new economic risks in its 10-Qquarterly report filed with the U.S. Securities and Exchange Commission.

Intel, which makes 80 percent of microprocessors that power personalcomputers, gave no new financial forecasts, saying it would publish amid-quarter update on December 4.

"Current uncertainty in global economic conditions poses a risk tothe overall economy as consumers and businesses may defer purchases inresponse to tighter credit and negative financial news, which couldnegatively affect product demand and other related matters," Intel saidin the third-quarter filing. These comments were not in itssecond-quarter filing.

"There could be a number of follow-on effects from the credit crisis on Intel’s business, including insolvency of key suppliers resulting in product delays," it said.

Other risks include the inability of customers to obtain credit tofinance purchases of Intel products, as well as Intel possibly facingits own difficulties in obtaining short-term financing from theissuance of commercial paper.

When Intel reported third-quarter results in mid-October, itprovided investors with wider-than-usual forecast ranges for the fourthquarter due to uncertainties about the global economy.

Intel had forecast fourth-quarter revenue to be between $10.1billion and $10.9 billion, which it said was weaker than typically seenin the period running up to the year-end holiday season.

Intel said on Friday that while its inventory levels are currentlyappropriate, economic uncertainty may result in lower-than-expecteddemand and force the company to write-off excess inventories, therebyhurting its gross margin.

It noted that some customers are building inventory, but "with thecurrent macroeconomic environment, it is hard to discern what demandwill be for the fourth quarter of 2008."

Intel, the industry’s biggest investor in the next generation ofchip production equipment, had previously trimmed its capital spendingplans modestly for 2008 to $5 billion, plus or minus $100 million, from$5.2 billion previously.

Shares of Intel were down 1.5 percent at $15.92 in pre-market trading, compared to their Nasdaq close on Thursday of $16.17.

(Reporting by Tiffany Wu, Additional reporting by Ajay Kamalakaran in Bangalore; Editing by Derek Caney)