Showgoers visit the Intel booth on the first day of the Consumer Electronics Show (CES) in Las Vegas in this January 8, 2013, file photo.

SAN FRANCISCO | Thu Jan 17, 2013 7:43pm EST

SAN FRANCISCO (Reuters) - Intel Corp forecast quarterly revenue that disappointed Wall Street and a sharp increase in capital spending it plans for 2013 unnerved investors already concerned about slow demand for personal computers.

Shares of the world's leading chipmaker slid more than 5 percent in after-hours trade on Thursday after it projected this year's capital spending at $13 billion, plus or minus $500 million, exceeding many analysts' estimates for about $10 billion.

Intel said $2 billion of its increased expenditures would go toward expanding a facility for researching future manufacturing technology. Some analysts worried that with PC sales already slow, expanding too quickly may create excess capacity that could hurt the bottom line.

"People are starting to freak out about the capex," said Sanford C. Bernstein analyst Stacy Rasgon. "The concern is that if I spend a lot of money and I build up my factories, I don't have enough demand to fill them. They have very high fixed costs, and it pulls your margins down."

Outgoing Chief Executive Paul Otellini, who plans to retire in May after a successor is identified, said the investment in manufacturing would lower costs in the long run.

"The leading edge capacity is the lowest cost for us on a per unit basis," Otellini told analysts on a conference call. "Regardless of what you think the size of the market is, the leading edge fabs are the single greatest asset that we have."

Otellini said the higher capex is not intended to bankroll a foundry or contract chipmaking business, but he did not rule out manufacturing semiconductors for other chip companies as long as that did not empower a rival.

Intel has agreed to manufacture custom chips on behalf of networking equipment company Cisco Systems Inc, Bloomberg reported on Thursday. An Intel spokesman declined to comment.

In the fourth quarter, Intel's revenue was $13.5 billion, compared with $13.9 billion a year earlier. Analysts had expected $13.53 billion.

It estimated first-quarter revenue of $12.7 billion, plus or minus $500 million. Analysts expected $12.91 billion.

STRUGGLING IN MOBILE

Intel is used to being king of the personal computer market, particularly through its historic Wintel alliance with Microsoft Corp, which has led to breathtakingly high profit margins and an 80 percent market share.

But it has struggled to adapt its technology for smartphones and tablets, a market dominated by Qualcomm Inc, Samsung Electronics Co Ltd and Nvidia Corp. PC makers are struggling to stop a decline in sales as consumers hold off on buying new laptops in favor of more nimble mobile gadgets.

Microsoft's long-awaited launch of Windows 8 in October brought touchscreen features to laptops but failed to spark a resurgence in sales that Intel and many PC manufacturers had hoped for.

Intel's hefty investment plans reflect its confidence in the future, even as Wall Street worries about the chipmaker's struggle to gain traction in the mobile market.

"Our core advantage really is our manufacturing leadership," Chief Financial Officer Stacy Smith told Reuters. "450 will give us a significant cost advantage relative to others."

Intel is expanding its research fab in Hillsboro, Oregon, to develop technology for manufacturing chips on 450 mm silicon wafers, a complicated step up from the current 300 mm wafer standard.

Larger wafers can translate into big savings because more chips can be etched onto each of them. But building 450 mm plants is expected to be so expensive that only a few industry leaders, including Intel, Samsung Electronics and TSMC, are expected to have the necessary scale.

Some Wall Street analysts gave Intel high marks for expected operating efficiency this year.

"The revenue isn't going to be there, but the margin and expense control is going to stabilize the bottom line," said Cody Acree, an analyst at Williams Financial. "I think it's probably a success if you can be flat in an industry that most people expect to be flat to down."

Intel foresees first-quarter gross margins of 58 percent, plus or minus two percentage points. Analysts on average expected gross margins of about 56 percent for the current quarter, according to Thomson Reuters I/B/E/S.

It estimated a 2013 gross margin of 60 percent, plus or minus a few percentage points. Analysts on average had expected 59 percent.

Net earnings in the December quarter were $2.5 billion, or 48 cents a share, compared with $3.4 billion, or 64 cents a share, year-ago period.

Analysts had expected 45 cents, and said the surprisingly strong performance was partly due to a lower effective tax rate of 23 percent. This was below Intel's forecast of about 27 percent.

Still, shares of Intel fell 5.6 percent in after-hours trade to $21.43, after closing up 2.58 percent at $22.68 on the Nasdaq.

"This is a company that is continuing to spend money to participate in the market. That may concern some investors," said Doug Freedman, an analyst at RBC Capital.

(Reporting by Noel Randewich; Editing by Richard Chang and Steve Orlofsky)

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n">(Reuters) - Johnson Controls Inc (JCI.N) forecast a smaller-than-expected profit for the current quarter due to lower auto production in Europe, sending the company's shares down more than 3 percent.

The company, the largest U.S. auto parts supplier, forecast a fiscal second-quarter profit of 40 cents to 42 cents per share, short of analysts' expectations of 51 cents, according to Thomson Reuters I/B/E/S.

"The forecast reflects the current European automotive production environment and short-term delays in flexing labor in the region," the company said on Friday.

Johnson Controls' stock was down 3.3 percent to $30.91 on the New York Stock Exchange. Shares fell even as the company posted a slightly better-than-expected profit in its fiscal first quarter.

The company in October said weaker business in Europe would reduce its first-half profit significantly. Restructuring actions initiated in the latter part of 2012 are expected to boost profit in the second half.

Johnson Controls, which makes car interiors and batteries, maintained its fiscal 2013 outlook of higher profit and sales.

Citi analyst Itay Michaeli said the second-quarter forecast suggested Johnson Control would earn 65 percent of its annual profit in the second half of the year, about 10 percentage points higher than in the last two years.

"Given the current demand environment and the operational pressures the company is facing in Europe, we believe the risks around this outlook are elevated and investors could avoid shares in the near term as this is discounted," Baird analyst David Leiker said in a research note.

In its fiscal first quarter, ended December 31, Johnson Controls earned $354 million, or 52 cents per share, compared with $424 million, or 62 cents per share, a year earlier. Analysts expected 51 cents.

Revenue rose marginally to $10.42 billion. Analysts on average had estimated revenue of $10.26 billion.

(Reporting by A. Ananthalakshmi in Bangalore and Deepa Seetharaman in Detroit; Editing by Maju Samuel)

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BRUSSELS | Thu Sep 27, 2012 12:27pm EDT

BRUSSELS (Reuters) - The outlook for Europe's economy darkened on Thursday with euro zone business confidence falling to a three-year low and a range of economic indicators across the continent pointing towards recession.

Shrinking lending and rising unemployment in Germany, until now a mainstay for growth in the euro zone, added to the gloom, with economists saying there was now no hope of growth for the region in the third quarter of the year.

"It is bad. Everything is down, we are heading towards another quarterly economic contraction," said Carsten Brzeski, economist at ING bank in Brussels.

The euro zone economy stagnated in the first three months of the year and contracted 0.2 percent in the April-June period. Economists expect another contraction in the third quarter.

Two consecutive quarters of contraction is considered to mark recession.

"While the (European Central Bank's) promise of bond buying and the German court ruling (endorsing the euro zone's permanent bailout fund) did a lot to calm financial markets, there is still the big issue of non-existent growth," Brzeski said.

The European Commission's monthly economic sentiment survey showed the index for the 17 countries sharing the euro falling to 85 points this month from 86.1 in August. Economists polled by Reuters had expected no change.

"It's yet another blow to euro zone growth hopes, especially as it follows on from the purchasing managers' surveys indicating that services and manufacturing output contracted at the fastest rate for 39 months in September," said Howard Archer, economist at IHS Global Insight.

"Consequently, it appears that the euro zone has suffered further, appreciable GDP contraction in the third quarter. This would put the euro zone officially into recession."

The European Commission's business climate indicator for the euro area, which points to the phase of the economic cycle, fell to -1.34 points in September from -1.18 in August, against market expectations of -1.19 points. The September reading was the lowest since October 2009.

GLOOM

More evidence of economic gloom in the third quarter came from European Central Bank data on lending to households and companies, which showed credit to the economy fell more than expected in August.

Loans to the private sector fell 0.6 percent from the same month a year ago, data released by the European Central Bank showed on Thursday, coming in below the expectations of economists polled by Reuters for no change.

The flow of loans to non-financial firms fell 10 billion euros after rising by 8 billion euros in July. The monthly flow of loans to households showed a gain of 7 billion euros after a drop of 1 billion euros in the previous month.

The Commission sentiment survey showed euro zone sentiment in industry declined to -16.1 in September from -15.4 in August, and to -12 in the services sector from -10.8.

"The country breakdown signals a sharper deterioration in the core than in the peripheries, the latter, however, remained at extremely low levels," said Evelyn Herrmann, European economist at BNP Paribas.

Germany, long the main engine of the euro zone economy, was suffering too.

"German economic sentiment posted another deterioration to an index level of 94.7 from 95.8, which, again, was mostly driven by the manufacturing sector, but also by the services sector," she said.

German unemployment rose for a sixth month running in September, suggesting domestic demand might not be able to compensate for weakening exports amid the euro zone crisis and power growth in the bloc's number one economy.

Joblessness remains near to its lowest level since German reunification more than two decades ago, and the unemployment rate held steady at 6.8 percent, contrasting starkly with the sickly labor market in many peers, including France and Spain.

But it rose by 9,000 in September, as the global slowdown and the euro zone's three-year-old crisis weigh on exports and prompt companies to hold back on investment, and economists said they saw it rising more in the months ahead.

The Commission data showed sentiment among euro zone consumers - the buying public - fell to -25.9 from -24.6 and to -18.6 from -17.2 in retail trade. Construction was the only sector where confidence improved marginally, to -31.9 from -33.1 in August.

The data also showed that inflation expectations rose among producers, the services sector and households alike, potentially complicating any possible decision by the European Central Bank to cut interest rates and help the economy.

But ING's Brzeski said the results of the Commission survey on inflation expectations were more closely correlated to ongoing price developments, with opinions strongly influenced by the spike in fuel prices.

"It does not make life easier for the ECB, but, under (President Mario) Draghi, the ECB has become more growth oriented with inflation more a derivative of growth, so with this drop in growth, the window for another rate cut this year is still open," he added.

(Reporting By Jan Strupczewski; editing by Rex Merrifield/Jeremy Gaunt)

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