Sydney, Nov 14, 2008 (ABN Newswire) - Normally big end tech stocks like Intel, Nat Semi, Applied Materials and the like don't feature all that much in investor thinking in Australia.

Reports yesterday from Intel and Nat Semi should change that because they are shocking. 

Sales slumping and forcing production to be cut as demand for these companies highly sophisticated products ebbs away. Thousands of jobs are on the line, or already under pressure.

It's a strong sign that its just not the commodity and resource sectors and associated companies feeling the brunt of the worldwide recession, along with retailers and financials. 

Technology sales are falling, consumer entertainment and technology products are sagging: mobile phones, IPods and the like can't hold back the tide

These high end tech stocks have already come in for a sell off this year, but that accelerated overnight, especially in the wake of the terrible update from Intel.

Intel's statement indicated that the world's largest chip maker over the past month had suffered a big drop off in business in the past month, but it's sector wide, given the statements from Nat Semi and Qualcomm last week and Applied Materials..

Intel is a bellwether for the US and global technology industry.

It reported that sales were being "affected by significantly weaker than expected demand in all geographies and market segments. In addition, the PC supply chain is aggressively reducing component inventories."

The warning came less than a month after Intel issued solid forecasts for the fourth quarter on its third-quarter earnings call.

US analysts said the update yesterday indicated a 14% fall off in revenue expectations since the forecast a month ago.

Intel says it now expects revenues of $ US9 billion for the quarter give or take $US300 million. 

That's down from the wide $US10.1–$US10.9 billion estimated at the time of the third quarter profit release. Intel said its gross margins were now expected to be about 55% (still fat), but they will be down from the 59%.

More worrying was the news that this statement replaced the planned mid-quarter update due December 4, so rapid has been the worsening in business conditions.

Intel had revealed it was re-introducing mid-quarter updates last month because of the rising level of business uncertainty. That has obviously worsened dramatically.

Intel's shares fell 6% in after-hours trading in New York on Wednesday to $12.71.

PC makers like Dell are cutting back on orders: the failure of Circuit City and Wednesday's earnings and sales downgrade by Best Buy tell us that the entire IT and consumer electronics sectors are slumping as consumers in the US, Europe, Japan, Australia, the UK and even China cut purchases. (Look at the way Harvey Norman's same store sales have fallen now since early October.)

Best Buy's senior managers were not optimistic. In fact they sounded shocked in these quotes.

CEO Brad Anderson was quoted in US reports as saying there had been "rapid, seismic changes in consumer behaviour [that] have created the most difficult climate we've ever seen". Brian Dunn, chief operating officer, said: "In 42 years of retailing, we've never seen such difficult times for the consumer".

So it's no wonder the drop off in demand is rapidly working its way back through the system to the likes of Intel, Nat Semi and also Applied Materials, which makes equipment for chip makers like Intel.

Qualcomm, the biggest supplier of wireless chips for mobile phones, has already cut sales estimates for the rest because customers were in turn cutting purchases. 

Many companies in the sector can't borrow because of the credit freeze and are trying to preserve working capital.

Applied Material is the leading supplier of chip-making equipment to companies like Intel. It said Wednesday it was was cutting 1,800 jobs or 12% of its workforce in order to cut costs in the face of a slump in orders.

The big north American Telecoms group, Nortel, revealed last Friday it was cutting 1,300 jobs.

National Semi Conductor (Nat Semi) is the chip maker of choice for the world's five leading mobile phone manufacturers: it cut its revenue forecast on Wednesday as well and said it will sack 5%, or 330 people, from its workforce.

The company said second-quarter sales will fall by up to 10% from the previous period and the business environment has "deteriorated significantly'' since the beginning of the quarter.

National said its sales for the quarter ending November 23 will be $US420 million to $US425 million, down from the $4US70 million to $US480 million range predicted in September.

The company makes chips that regulate and control power in devices such as Apple iPhones, for example.

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