STOCKWATCH: US Market sees Beige over Intel forecasts

US stocks slumped yesterday after a downbeat capital spending forecast from chip maker Intel disappointed investors and the release of the Beige Book – an index of the Federal Reserve's economic data.

All eyes were on the technology bellwether Intel, which reported better-than-expected sales and profits yesterday, giving investors at least slight reason to hope that the worst of the technology industry's long downturn is over. But on the subject of a recovery, feelings are as mixed as Intel's results.

Intel posted quarterly earnings that more than doubled as revenues outpaced expectations on sales of higher-priced chips. Intel said that it posted sales of US$7.16 billion and profits of US$1.05 billion, or 16 cents a share, in the fourth quarter of 2002. The company had previously told investors to expect sales of no more than US$7 billion, and analysts were predicting profits of 14 cents a share.

However the chip maker said it plans to cut capital expenditures for 2003 by as much as 25 per cent and that first-quarter revenues would be lower, reflecting a typical seasonal slowdown.

The mixed news drew lukewarm comments from analysts. Intel's capital spending outlook means grim times for semiconductor equipment makers.

But some speculate the increase in chip prices is a sign that corporate demand for computers is finally increasing after plunging for two years. As companies tend to buy new, fast computers with more expensive chips, while consumers usually pick cheaper models, the increase in sales indicates corporates are buying.

Yet, Intel does not expect a strong recovery for the US economy this year, Intel's chief financial officer Andy D. Bryant, said on a conference call with investors and analysts.

The chip maker also disclosed that it had cut 4,700 jobs, almost 6 per cent of its work force, in 2002, including 3,000 during the last three months of the year. The company expects the size of its work force to stay flat in 2003.

Yesterday, the US Federal Reserve said economic activity across the US remained "sluggish" through the fourth quarter of last year, with only scattered signs of slight improvement. Its latest "Beige Book" survey of economic conditions across the US, a summary of anecdotal evidence collected from the Fed's 12 regional headquarters, lived up to its name. The book described the economy as soft and subdued from mid-November to January - little changed from the last survey.

"Most districts characterized growth as sluggish, or economic activity as soft or subdued," said the report, which combines dispatches from the Fed's 12 districts. The report covered the period of mid-November to mid-January.

The report also blamed slack manufacturing, slipping consumer demand and pricing pressures for the current economic environment. The manufacturing sector continues to struggle with weak demand and excess capacity, but manufacturers "expanded production a bit on balance, with notable gains for defense-related and biomedical products," the Fed said.