The world’s largest maker of semiconductors,  Intel Corporation (NASDAQ:INTC), has lowered its forecast for the third quarter sales and withdrew the full-year forecasts. The company said it will give the revised full-year prediction with its Q3 reports on October 16. Intel estimates third quarter sales to be $12.9 to $13.5 billion, lower than its previous projection of $13.8 billion to $14.8 billion. Analysts were expecting Intel Q3 sales to be $14.2 billion, according to Bloomberg.

Intel corporation

The Santa Clara, California-based chipmaker said demands are declining for personal computers, as customers are reducing the inventory. Intel further said that the demand from corporate customers is softening, and growth is slowing in emerging markets. Intel Corporation (NASDAQ:INTC) is witnessing a reduction in orders at a time of the year when the demands shoot up usually. During the second half of the year, PC makers build more machines to meet the demands of holiday shopping season. The disappointing forecast has caused fear among analysts that the PC market may not grow this year.

Intel Corporation (NASDAQ:INTC) had already lowered its sales forecast in July. Back then, the company said it expected revenues to rise 3 to 5 percent in FY 2012, lower than the earlier projection of higher single digit gains. This time, the company has also reduced forecasts on gross margin to 61-63 percentage points from the prior prediction of 63-65 percent. You get gross margin figure by deducting the cost of production from total sales.

Mizuho Securities said in its report, that Intel Corporation (NASDAQ:INTC)’s pre-announcement didn’t come as a surprise, as weakness in PC market is widely understood. The negative point is the falling demand in enterprise and emerging markets. Another potential cause of worry for the PC market is the release of upcoming tablets from Apple, Microsoft Corporation (NASDAQ:MSFT), and  Amazon.com, Inc. (NASDAQ:AMZN). Mizuho expects the PC market to remain depressed this year.

Morgan Stanley asks an interesting question about Intel, based on this announcement.  Will 4Q & 2013 likely to be difficult as well? Recall that inventory days after 2Q were at a multi-year high, which is likely to depress factory utilizations and thus gross margins in 4Q. Further, customer inventory levels are elevated still, despite a 7% Y/Y decline at the midpoint in 3Q, when inventory should have been depleted before the Windows 8 release to production a couple of weeks ago. The ultrabook push in 4Q is likely going to drive a high i3 mix in higher-end notebooks. In 2013, there are large increments of fixed costs coming online from two years of very high capex, even if that capex now slows.

Analysts believe that Intel Coporations’ news could create headwinds for Advanced Micro Devices, Inc. (NYSE:AMD) and NVIDIA Corporation(NASDAQ:NVDA). Today, Cantor Fitzgerald  downgraded the shares of NVDA to HOLD from BUY and cut the target price to $13.50 from $20. They note that  approximately 80% of Nvidia revenues are tied to sectors of the PC and computer ecosystem. Additionally,  NVIDIA Corporation(NASDAQ:NVDA)’s PC graphics competition includes semiconductor powerhouses like Intel Corporation and Advanced Micro Devices, Inc. (NYSE:AMD).

Within the discrete GPU space, Advanced Micro Devices, Inc. (NYSE:AMD) (purchased  NVIDIA Corporation(NASDAQ:NVDA)’s graphics arch-rival in 2006) is a fierce and very capable competitor (core competency is mobile graphics power management).

Intel stock is down 5.4 percent from $25.10 to $23.75 today in New York. The shares were up 3.5 percent this year till yesterday.