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Bourses driven lower after Intel margin cut

14/07/2004 12:55
Technology stocks drove European equity markets sharply lower on Wednesday after Intel, the world's largest chipmaker, cut its profit margin forecast after the close on Wall Street in the previous session.

By mid morning, the FTSE Eurotop 300 was down 0.8 per cent to 973.99, while Frankfurt's Xetra Dax shed 1 per cent to 3,864.32. In Paris, the CAC-40 declined 0.6 per cent to 3,632.63, and London's FTSE 100 was 0.6 per cent lower at 4,331.3.

In New York overnight, the Dow Jones Industrial Average was marginally higher at 10,247.59, while the Nasdaq Composite fell 0.3 per cent to 1,931.66. However, the most significant event for the tech sectors came after the close as Intel reported a near doubling of profit in the second quarter.

But any enthusiasm for the US-listed chipmaker was crushed after the company warned that inventories rose, forcing it to cut its profit-margin forecast for the full year to 60 per cent from 62 per cent. Intel shares fell nearly 5 per cent in after-hours trade.

In Europe, ASML, the Dutch maker of chip manufacturing equipment, was down 1.5 per cent to €12.83 despite beating expectations with second-quarter net profit of €65m. The company said it had an order backlog, which included 147 new machines, worth €1.8bn and said it expected positive market conditions "well into 2005".

But the negative pull of Intel's profit margin woes was too much. "Margin pressure from the semiconductor sector’s bellwether giant, Intel, does not paint a pretty picture for weaker peers," said Sean Murphy at Nomura, the brokerage. "We believe we’re still stuck in a mode where revenue growth can be achieved but pushing customers to grant price rises is exceptionally difficult."

STMicroelectronics, the French chipmaker, was down 2.2 per cent to €16.56, while German peer Infineon lost 3.3 per cent to €9.49. Dutch electronics giant Philips, which reported strong earnings and growth at its semiconductor division in the previous session, shed 1.7 per cent to €20.96.

Insurers and those stocks particularly exposed to equity declines were all weaker. Reinsurers Munich Re and Swiss Re fell 1.1 per cent to €82.99 and 1.7 per cent to SFr74.60 respectively, while Axa, the French insurer, was 2 per cent lower at €16.94.

Allianz, the German insurer, was down 1.3 per cent to €82.85. "We forecast better earnings quality due to lower claims and less reliance on gains," said analysts at JP Morgan. "But maintain our overall neutral recommendation because, in a sector context we see greater valuation upside elsewhere."

In the UK, Marks and Spencer was expected to host a rather vocal annual general meeting as shareholders get their chance to react to recent events at the high street retailer. Ahead of the meeting, which begins at 1300 GMT, the shares were up 1.6 per cent to 365¼p

Commerzbank, Germany's third-largest, was reported to be facing a rival offer to its bid for the BHF unit of Dutch peer ING from Cerberus and Fortress, the financial investors. Its shares were 0.8 per cent lower at €13.17.

Accor, the French hotel group, was one of few risers on the CAC-40 - up 1 per cent to €34.40 - after Morgan Stanley, the investment bank, raised its price target on the stock to reflect the "pick up in trading" in the company's core markets, France and Germany.

"Since March 2004, both France and Germany have started to recover, helped by weak comparables and a slow recovery of the domestic economies," said Morgan Stanley in a research note. "We believe that this is an important inflection point for trading at Accor’s hotel division and we expect the company to report strong second-quarter sales on July 28."