INTEL WARNS OF DECLINE IN PROFITS; STOCK TUMBLES IN AFTER-HOURS TRADING.

Byline: Saul Hansell The New York Times

Shooting a warning across the bow of the recently revived stock market, Intel Corp. said Wednesday that first-quarter sales would fall about 10 percent below modest predictions it had made just a few months ago.

In January, Intel had said it expected first quarter sales to match the $6.5 billion posted in the fourth quarter of 1997. Now Intel is projecting first quarter sales of about $5.85 billion because of slack demand.

The news from the dominant maker of computer chips, announced after a trading halt Wednesday afternoon, caused Intel's stock to plummet by 10 percent in after-hours trading to $77.

``This is not a good omen,'' said Drew Peck, a semiconductor stock analyst at Cowen & Co. ``A 10 percent decline in revenue is a big deal.''

After falling sharply at the end of last year, Intel's shares had surged by 19 percent this year and played an influential role in the broader stock market's recent advances to record levels.

Intel has become somewhat of a bellwether for corporate earnings. And after its announcement, stock-index futures contracts dropped sharply, an indication that investors fear a pullback in the market today. The fear reverberated to the Japanese stock market, where the main Nikkei index fell more than 1 percent early today.

``This is going to be the opening gun in a whole series of disappointing announcements for the March quarter,'' predicted Michael Murphy, editor of the California Technology Stock Letter.

The bulk of the shortfall came from sales of Intel's older and less expensive processors, said Howard I. High, a company spokesman. The newer more powerful Pentium II line was less affected, he said.

This would imply that sales of very low-cost computers, which has been the hottest segment of the market, have fallen off.

Even though they have specialized in chips to be used for low-cost computers, Intel's competitors don't seem to be benefiting from its decline. Advanced Micro Devices - the No. 2 chip maker, with about 8 percent of the micro processor market - expects revenue to fall in the first quarter and losses to increase. Analysts say the company still cannot manufacture enough chips to meet the demand.

Analysts still said they expected sales of low-cost personal computers, now 35 percent of the market, would ultimately continue to expand, putting pressure on Intel's sales growth.

Indeed, Intel announced Wednesday that it would introduce a new line - Celeron - of processors for low-cost computers. That represents a sharp change in strategy for the company that has until now put most of its development energy into designing the most powerful new chips.

``The sub-$1,000 PCs are opening up a whole new market,'' said Murphy.