But Intel faces a tough PC market, which is still teetering from the economic slowdown of 2001. Normally, PC sales trend slightly downward from the first quarter to the second. This year, however, sales seem to have dropped even more than usual. PC sales at US retailers had shown improvements between January and March, but they fell off dramatically in April, dropping 22.5 percent from April 2001, according to NPD Techworld. So far, it seems, May's sales weren't much better. May is typically the worst month of the year for unit volumes, said Steve Baker, analyst with NPD Techworld. While results are still rolling in for the month, "it's looking pretty soft", Baker said. And sales are unlikely to show much growth until the back-to-school period, which begins in late July or early August. Couple the slower sales with large amounts of inventory at retail stores -- some PC makers have enough inventory to meet demand for 10 weeks, whereas three weeks is considered a desirable average -- and it's been a very difficult quarter so far. Meanwhile, PC demand is picking up in some markets outside the United States. In May, sales improved in China, a region that represents about 15 percent of Intel's revenue, and that trend should continue into June, JP Morgan analyst Eric Chen wrote in a report. Commercial PC sales to midsized and large businesses are expected to decline sequentially from the first quarter and won't be able to make up losses at retail -- sales to consumers and small companies. June will matter
Intel will have to rely on its sales in June to meet analysts' second-quarter expectations. Analysts have at least some optimism that the company could pull up at the last minute. With a little less than a month to go in the quarter, "much is still to be determined," Joe Osha, an analyst with Merrill Lynch, wrote in a Thursday report. Typically, most second-quarter sales come in the last month of the period, Osha noted, making it tricky to predict Intel's results. June usually marks the beginning of a surge in orders for the back-to-school PC build. To date, "We've seen some increase (in June), but I couldn't call it a surge... which is what lead us to lower our revenue guidance," Bryant said. At the same time, "We haven't seen the enterprise space start to buy PCs yet. But we weren't counting on that. We were just counting on a little pickup across the board." Despite lackluster sales of PCs, analysts expect Intel's flash memory revenue to improve. Flash is used to store data in handheld devices and networking equipment. "Sales of flash memory appear to be experiencing solid improvement this quarter," Robertson Stephens analyst Eric Rothdeutsch wrote in a report Thursday. Rothdeutsch attributed the gains to "stable pricing and better unit demand driven by applications including handsets, PDAs, wireless LANs and DSL modems." His firm expects Intel's flash revenue will be up 5 percent from the first quarter to about $480m. Intel has begun shipping a new chipset, the 845G, which could help it gain back some of the market share it lost to competitors in that area. The company has also been enjoying some cost savings from the first chips produced in its new factories that can use 300-millimeter wafers. Lowering costs could help Intel to greater profitability in the quarter. Taken together, the various factors make it a difficult quarter to call, analysts said. As a result, Merrill Lynch downgraded Intel stock on Thursday from a "strong buy" rating to a "neutral" rating, saying Intel might not present a good short-term opportunity for investors. But the company added that its "long-term 'buy' rating is reiterated, as our concerns here relate to the lack visibility into the PC end market, particularly on the corporate side, rather than anything company specific."
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