Intel Will Slow Output, Watch Windows 8 Rollout

Intel (Nasdaq: INTC), the No. 1 chipmaker, said it will lower production as it watches orders for new PCs powered by Windows 8 from Microsoft (Nasdaq: MSFT), the world's biggest software company.

The reason is that the Santa Clara, Calif.-based manufacturer sees lower demand for PCs in the current climate and wants to see improvement, CEO Paul Otellini said after Intel reported third-quarter results on Tuesday.

“Our customers are taking a cautious inventory approach in the face of market uncertainty,” Otellini said. “Our forecast assumes an incremental decrease in inventory and our customers going into year-end.”

Usually, Intel issues a robust forecast for the fourth quarter, due to holiday sales, as well as orders from enterprises for new servers and PCs for the coming year.

Intel shares fell 4 percent to $21.26, a new 52-week low in early Wednesday trading, before closing at $21.79, down 56 cents, or 2.5 percent.

There was a drop despite reporting third-quarter results that narrowly beat estimates, although revenue dropped the expected 5.4 percent. Intel said net income fell 14 percent to $2.97 billion, or 58 cents per share. Revenue was only $13.5 billion.

Still, there were bright spots in Intel’s report, especially for increases in sales to big server makers, most likely Hewlett-Packard Co. (NYSE: HPQ) and International Business Machines Corp. (NYSE: IBM), the top global computer makers, and other accounts.

Otellini said Intel is banking on the success of Windows 8, which Microsoft expects to start shipping on Oct. 26, for stimulating a new round of products and orders.

“We’ll know a lot more about that 90 days from now after the Windows 9 launch,” he said Tuesday.

Intel’s report, as well as an earlier warning from archrival Advanced Micro Devices (NYSE: AMD), the No. 2 microprocessor developer, that it would miss estimates, came after market researchers Gartner (NYSE: IT) and IDC both reported PC shipments dropped 8 percent in the third quarter.

Rather than growth in PCs and laptops, the researchers see no growth at all for 2012, with new momentum shifting to smartphones and tablets.

Intel’s new Ultrabook chip line is designed to compete with tablets, because they are quick to turn on; its new Atom chips are designed for tablets.

Otellini and Intel CFO Stacy Smith said more than 140 products have been designed by HP, Dell and other customers, including China’s Lenovo Group (Pink: LNVGY), now the world’s No. 2 PC maker, for shipment this quarter. As well, more than 40 new tablets have Atoms designed into them, they said.

The executives said they expect Intel’s fourth-quarter revenue to range between $13.1 billion and $14.1 billion.