Intel Warning Knock... Market Inefficiency Reigns (INTC, TXN, ALTR, WDC, SMH, AMD, MU)

Intel Corporation (NASDAQ: INTC) may be a recent position added to the Berkshire Hathaway Inc. (NYSE: BRK-A) stock holdings portfolio, but the semiconductor and processor giant is now issuing an earnings warning.  If you have been tracking the news out of Texas Instruments Inc. (NYSE: TXN), Altera Corporation (NASDAQ: ALTR), and Western Digital Corporation (NYSE: WDC), today’s news might not seem like such a surprise.  What matters is that the condition is expected to remain.

Intel said that its key fourth-quarter results “are expected to be below the company’s previous outlook due to hard disk drive supply shortages.”  The new fourth-quarter revenue target is $13.7 billion, plus or minus $300 million.  The prior target had been $14.7 billion, plus or minus $500 million.

Where this gets interesting is that Intel says personal computer sales will be up sequentially but that the worldwide PC supply chain is reducing inventories and microprocessor purchases as a result of hard disk drive supply shortages.  Analysts had been warning about this last week and before for both Intel and the rest of the PC and semiconductor chain.

Unfortunately, Intel said that it expects hard disk drive supply shortages to continue into the first quarter.  The current expectation is that there will then be a rebuilding of microprocessor inventories as supplies of hard disk drives recover during the first half of 2012.

The Semiconductor HOLDRs (NYSE: SMH) is trading down nearly 2% on the news out of Intel this morning, while Advanced Micro Devices, Inc. (NYSE: AMD) is down 2% at $5.42 right before the open.  Micron Technology Inc. (NASDAQ: MU) is down 2.2% at $5.76 in the pre-market.

Gross margin is now put at 64.5%, plus or minus 2%, versus the prior forecast of 65% (plus or minus 2%); non-GAAP gross margin is expected to be 65.5% (+/- 2%) versus a prior target of 66% (+/- 2%).

Intel also noted that its earnings and news quiet period will begin on December 16 and that its earnings will be released on January 19, 2012.

Shares of Intel had been at $25.01 and its 52-week trading range is $19.16 to $25.78.  The pre-market trading is showing a drop of 3.2% at $24.20.  The market had been given warnings of this but no one ever seems to want to admit that just because a sector is slowing and has high supply problems that a warning will still come.  Had more warnings from analysts (and chip peers) in recent days and weeks not been given out, then the reaction may have been far worse.

JON C. OGG