Intel shares sink on weak PC demand

Intel Corp.'s shares sank sharply Friday after the company reported that weak demand for personal computers is hurting its financial performance and it announced big spending plans ahead.

THE SPARK: The world's biggest chipmaker said late Thursday that its fourth-quarter net income fell 27 percent to $2.47 billion and its revenue fell 3 percent to $13.5 billion. Intel also predicted a low single-digit percentage increase in revenue this year. While all of this met market expectations, analysts remain concerned about the company's market challenges.

Intel also announced plans to significantly increase its capital expenditures to a total of $13 billion in 2013, up $2 billion from 2012.

THE BIG PICTURE: Intel is facing a shift in consumer spending from PCs — most of which use Intel chips — to smartphones and tablets, which don't. The Santa Clara, Calif., company is trying hard to get its chips into smartphones and tablets.

Investors are also concerned about the company's plans to spend more money amid declining profitability and slow sales.

THE ANALYSIS: A number of analysts gave a bleak assessment of the company's position and lowered their earnings estimates on Friday.

Sterne Agee analyst Vijay Rakesh noted that there was "no excitement in the PC supply chain and no rebound in PCs."

Susquehanna analyst Chris Caso said Intel's results and guidance were not far from forecast but the company had already greatly reduced guidance. He said the increase in capital spending won't have a full impact on the company for several years but called it an "unwanted" surprise for investors.

And Raymond James analyst Hans Mosesmann said the capital spending target is way too aggressive given its other challenges. He reiterated an "underperform" rating on the company's shares.

"We just do not see why Intel needs to spend massive amounts on capacity," Mosemann said. "Investors looking for a reset out of Intel entering 2013 did not find it."

SHARE ACTION: Intel's shares were one of the top decliners in the S&P 500 Friday. Its shares fell $1.52, nearly 7 percent, to $21.15 by early afternoon. Its stock has fallen fairly steadily since hitting a 52-week closing high of $29.18 in May.

The news also sent shares of competitor Advanced Micro Devices Inc. down more than 7 percent as well to $2.54.