Intel Earnings Strong Even as PC Prices Fall
Intel Corp., the largest producer of microprocessors for personal computers, Tuesday reported strong first-quarter earnings of $2 billion, or 57 cents a share, slightly beating expectations on Wall Street.
The chip maker’s profit was 58% higher than in the same quarter last year, adjusted for a stock split Monday.
Intel’s sales in the quarter, $7.1 billion, were up 18% from the year-earlier period.
The healthy results come as the microprocessor and personal computer industries suffer from rapidly declining prices for PCs--a trend many say will continue at least through the remainder of the year.
Intel shares dropped 75 cents to close at $60.50 on Nasdaq before the announcement and slid to $59 in after-hours trading, possibly due to slightly lower-than-expected revenue and Intel’s projection that sales for the current quarter will be flat or down from the first quarter.
In the retail PC sector, the percentage of machines selling for more than $1,500, the price segment from which Intel derives the majority of its profit, dropped to about 4% of the market, compared with nearly 17% a year ago, according to San Diego market researcher Infobeads.
Several PC companies, most notably Intel’s biggest customer, Compaq Computer Corp., have also seen their stocks hammered recently due to the effect of declining PC prices on revenue.
In contrast, Intel increased its profit margin slightly, in part because the bulk of its chips go into more powerful, higher-priced PCs. Margins were also helped by cost-cutting and production efficiencies.
“That’s just awesome in the face of all the price erosion,” said Nathan Brookwood, principal analyst at Insight 64 in Saratoga, Calif.
Intel should be able to continue this feat, he said, because the increasing availability of high-speed Internet links to homes and businesses has encouraged the use of software that runs best on faster PCs and should increase demand for high-speed processors.
Intel’s rapid roll-out of its Pentium III chip reflects this trend.
“The Pentium III remains on track to be our fastest-ramping processor ever,” said Paul Otellini, executive vice president of the Santa Clara, Calif.-based company. Intel’s Celeron processor for budget PCs also gained rapidly in the quarter and the Asian market showed improvement, he said.
The results should help dispel the idea that Compaq’s malaise reflects an overall industry downturn, analysts said.
“If Intel’s numbers are fairly healthy, that means the PC market is healthy,” said Ashok Kumar, an analyst with Piper Jaffray in Minneapolis. Microprocessor unit sales are up year over year, with no inventory buildup, he said.
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Intel’s earnings have rebounded from a sharp decline in early 1998. Quarterly sales and net income, in billions:
Sales
1st-qtr. 1999: $7.1 billion
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Net income
‘99: $2 billion
Source: Intel Corp.
