Intel's outlook fails to inspire hopes for PC recovery

SAN FRANCISCO (Reuters) - Intel's weak outlook for fourth-quarter revenue and margins dispelled lingering hopes for a revival in PC demand towards the end of the year, pushing its shares lower.

The company's quarterly report on Tuesday followed a warning by the top chipmaker in September that demand was weaker than expected and that revenue would fall far short of its forecast.

With economic growth slowing in China and struggling in Europe and the United States, global PC shipments are expected by analysts to decline slightly this year, the first annual drop since 2001.

Intel said its Data Center Group, which sells server chips and other equipment to companies and governments, grew 6 percent year over year in the third quarter, although it was down 5 percent from the prior quarter.

'Data center came in a lot weaker than most folks expected. You have to remember, data center has been the rock we've all leaned on,' said Patrick Wang, an analyst at Evercore Partners. 'It's a reflection of enterprises and companies rationalizing their year-end spend.'

Shares of Intel fell 0.89 percent in late trade after closing up 2.85 percent at $22.35.

The PC industry has been banking on Microsoft's launch of Windows 8 later in October to breath new life into laptops and slow the trend of consumers buying smartphones and tablets instead of PCs.

But there has been little sign of a significant bump in PC manufacturing or shipments ahead of the launch, at least in the short-term, analysts say.

Intel said fourth-quarter gross margins would be 57 percent, or 58 percent non-GAAP, both plus or minus a couple of percentage points.

Wall Street had expected Intel to deliver gross margins of closer to 62 percent on average in the holiday quarter. Some warn that the chipmaker may find it tough to shore up its profitability as tablet computers continue to lure buyers away.

In the third quarter, Intel's revenue was $13.5 billion, compared with $14.2 billion a year earlier. Analysts had expected $13.23 billion in revenue for the third quarter, according to Thomson Reuters I/B/E/S.

The world's largest chipmaker estimated fourth-quarter revenue of $13.6 billion, plus or minus $500 million. Analysts expected $13.74 billion for the current quarter.

Net earnings were $2.97 billion, or 58 cents a share, compared with $3.47 billion, or 65 cents a share in the same quarter last year.

(Reporting By Noel Randewich; Editing by Bernard Orr)