INTEL STOCK TAKES TUMBLE; COMPANY'S QUARTERLY EARNINGS REPORT SENDS ENTIRE MARKET INTO SWOON.

Byline: Lawrence M. Fisher The New York Times

Shares of Intel Corp. plummeted Friday after the company said its second-quarter results would fall below its own and Wall Street's expectations. Intel attributed the shortfall to weaker-than-expected demand for its Pentium processors, especially in Europe.

Because Intel, the world's largest maker of computer chips, is such a bellwether for technology stocks, the announcement briefly threw the entire market into a tailspin. The Dow Jones industrial average tumbled 88 points, and the Nasdaq composite index fell 50 points in the first hour of trading. But the market and most technology stocks made a strong recovery.

After falling as much as 14.5 percent, Intel shares closed at $151.50, down $12.266, or 7.5 percent. More than 57 million shares were traded, making it the most active issue in U.S. markets and one of the most heavily traded stocks in a single session in the history of the Nasdaq market.

Industry analysts offered widely divergent interpretations of Intel's terse announcement, which was made before the market opened.

Many said it reflected a production transition as demand for Intel's newest processors with so-called MMX multimedia technology exceeded production capacity at the same time as sales of older chips were being depressed by the popularity of the newer products. Some said it was an ordinary seasonal slowdown. And others said the announcement showed that Intel would be unable to match the phenomenal growth of last year.

Howard High, a spokesman for Santa Clara-based Intel, said the weakness was primarily related to poor European sales but that the transition to the new chips was also a factor. ``We are seeing a more rapid decline in interest in the traditional Pentium that does not have MMX technology than we anticipated,'' High said.

Because the new chips are larger, they require greater production capacity. ``It does present some balance problems,'' he said.

Even if all this is only a transitional problem of a sort that Intel has weathered many times, there is a significant difference this time. Intel faces renewed competition from Advanced Micro Devices Inc., which began shipping its K6 processor this year, and from Cyrix Corp., which said Friday it had begun shipping its MMX-enabled 6x86MX processor.

For the first time in many years, these competitors are offering chips comparable to Intel's fastest, and at lower prices.

Intel said it expected revenue in the current quarter to be down 5-10 percent from the $6.4 billion of the year's first quarter. On April 14, when Intel reported its first-quarter results, it predicted revenue for the second quarter would be flat to slightly higher.

Intel also said gross profit margins would suffer in the quarter, falling a few points below the 64 percent it reported in the first quarter.

After the announcement, the consensus estimate for Intel's second-quarter earnings dropped to $1.76 a share from $2.16, while the estimate for the fiscal year was lowered to $8.19 a share from $8.94, according to First Call. Fiscal 1998 estimates fell to $10.21 a share from $10.29.