Worries about weak back-to-school PC demand hurts shares of chipmakers Intel, AMD, Nvidia

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Intel, other chip makers suffer on PC sales fears

SAN FRANCISCO — Shares of chipmakers Intel Corp., Advanced Micro Devices Inc. and Nvidia Corp. dropped Tuesday as analysts said demand for computers looks shaky heading into the all-important back-to-school season.

The stocks tumbled as J.P. Morgan analyst Christopher Danely warned investors that personal computer orders are “falling off a cliff.” Barclays Capital’s Tim Luke told clients that his latest checks reveal that third-quarter PC sales “have continued to remain subdued and Intel and AMD seasonal sales guidance may prove bold.”

The comments amplified fears that PC sales, which have been buoyed by intense interest in cheap laptops, are starting to slow. One reason is tightfistedness by consumers who are worried that the economy and their job prospects will stay weak.

Some semiconductor makers have reported blowout numbers — Intel, for example, booked its biggest quarterly net income in a decade in the second quarter — but in many cases their stocks have barely budged. That’s because investors have been worried that forecasts for the second half of 2010 could be too optimistic, given worries about Europe’s debt crisis and the strength of the U.S. economy’s recovery.

Intel is the world’s No. 1 maker of the “brains” of PCs. AMD is No. 2. Nvidia is a big maker of graphics chips. The stocks can rise or fall together on sweeping news about the health of the computer market.

On Tuesday, Intel shares fell 4.2 percent, or 86 cents, to $19.79. AMD shares fell 8 percent to $6.83, while Nvidia shares slipped 4.5 percent, or 43 cents, to $9.21. The Philadelphia Semiconductor Index slid 2.8 percent, or 9.88 points, to 344.17 points — a bigger drop than in the broader markets Tuesday.

Computer sales are being hurt by austerity measures in Europe, tightened spending in China and a cooling off of stimulus spending in the U.S., said analyst Tristan Gerra with Robert W. Baird & Co.

Gerra downgraded his rating on Intel’s shares to “Neutral” from “Outperform” on evidence of a sharp deceleration of PC orders in August and signs that a recovery in September is looking unlikely. One reason is PC makers bought too many chips in the first half of this year even as demand started to slow this summer, Gerra said.

“We see the weakness more so on the consumer side, even though we hear of some weakness in enterprise as well, notably from Europe,” Gerra wrote in an e-mail.

J.P. Morgan’s Danely said his checks with industry sources revealed that many PC makers have cut their orders for new products.

Hewlett-Packard Co., the No. 1 PC seller, and Acer Inc., No. 3, have cut orders to suppliers of laptop parts, Danely wrote. And Acer and Lenovo Group Ltd., No. 4, have cut orders to semiconductor companies, he wrote. As a result of his findings, Danely lowered his estimates on Intel’s 2010 numbers.

“Although there is a possibility order rates could recover, we view this as unlikely given increased inventory in the supply chain and weakening demand in the U.S. and Europe and slowing demand in China,” he wrote in a note to clients Tuesday.

He said he expects other markets to follow.

“We expect the weakness to show up in every end market for semiconductors, just as it always has during downturns,” he wrote. “We continue to be cautious on the space due to the large amount of capacity coming on line combined with softening demand.”

One bright spot for the industry is proving to be a double-edged sword.

Apple Inc.’s iPad is eating into laptop sales but its strong showing is an encouraging sign for overall computer demand. Apple has sold more than 3 million iPads since it went on sale in April.