Intel Profit Report Disappoints
Intel Corp. surprised analysts with lower-than-expected earnings Tuesday--its second straight quarterly disappointment as the world’s largest semiconductor maker sold fewer chips than expected and prices for its products declined.
Third-quarter net income fell 6.5% to $1.46 billion, or 42 cents a share, compared with 44 cents a year earlier. Intel’s decline in sales was caused partly by extraordinary manufacturing co1937011488of its bruising price war with rival Advanced Micro Devices Inc.
Excluding a charge for the purchase of Level One Communications, profit was $1.9 billion, or 55 cents a share; analysts polled by First Call Corp. expected earnings of 57 cents. Intel shares rose 19 cents to $76.69 in regular Nasdaq trading, then plummeted $5.69 to $71 in after-hours trading. At that price, the stock is down 21% from its recent peak.
Sales rose to $7.33 billion from $6.73 billion a year earlier, or 8.9%, on strong shipments of microprocessors for personal computers, chip sets (which control communication between PC components and perform other functions) and memory chips--but failed to meet expectations.
Mark Edelstone of Morgan Stanley Dean Witter in San Francisco expected $7.4 billion in sales, while Jack Geraghty, an analyst at Gerard Klauer Mattison & Co. in New York, was looking for $7.5 billion.
“Our microprocessor business was solid during the quarter,” said Craig R. Barrett, Intel’s chief executive. “Revenues were up, units grew substantially to a new record, and we introduced a large number of new products across all market segments.” Barrett predicted an improved fourth quarter.
Some analysts agreed that Intel should be back on track in the current quarter--traditionally the biggest for the PC business, and, as the industry’s main chip supplier, for Intel.
“They had some one-time events that drove down their gross margins,” said Ashok Kumar, an analyst with U.S. Bancorp Piper Jaffray, based in Minneapolis.
Most notably, Intel incurred start-up costs for retooling its fabrication plants to build chips on the .18-micron process--a term that refers to the width of circuitry on a microprocessor.
Intel is moving all its plants from the .25-micron process to .18-micron, a costly transition, but one that will greatly increase both the power of its chips and its manufacturing efficiency.
Intel does not disclose the average selling price for its products, but Kumar estimates that number to have dropped to $185, well below Intel’s traditional target of at least $200.
But the outlook should improve soon, said Kumar, because “manufacturing costs continue to decline at a faster pace than ASPs.”
Intel also sold fewer-than-expected high-priced chips for notebook computers, as tight supplies of liquid-crystal displays depressed the entire notebook market.
The price war with AMD also contributed to Intel’s problems as the chip giant moved aggressively to consolidate gains in the economy PC sector. In August, Intel sold processors for 56% of sub-$1,000 PCs sold in the U.S. retail channel, compared to about 28% for AMD--virtually reversing their positions from only six months earlier, according to market research ZD Infobeads in San Diego.
AMD has recently begun to compete in the more lucrative market supplying chips for the most powerful Windows-based PCs and computer workstations. Industry watchers currently rate its Athlon processor as faster than Intel’s flagship Pentium III.
But AMD was able to sell fewer than half of the 500,000 Athlon chips it built in the last quarter, said Kumar, due to a lack of customers and constrained supplies of motherboards--the main PC circuit board--due to problems associated with Taiwanese suppliers who were hit hard by the September earthquake.
Intel, which builds many of its own motherboards, is less dependent on Taiwanese partners.
Times wire services were used in compiling this report.
Other Earnings at a Glance
Other earnings, excluding one-time gains or charges unless noted:
Seagate Technology Inc., the world’s largest maker of computer disk drives, said it returned to profitability in its fiscal first quarter, soundly beating forecasts as restructuring and job cuts started to bear fruit. Seagate posted a profit of $2 million, or 1 cent a share including one-time items, for the three months ended Oct. 1, compared with a loss of $30 million, or 12 cents, for the year-ago period. Revenue rose to $1.68 billion from $1.55 billion.
* Satellite operator PanAmSat Corp. said its third-quarter earnings rose 15% with help from a $15-million one-time gain and an increase in revenue from telecommunications services. For the three months ended Sept 30, the company had net income of $34 million, or 23 cents a share, compared with $29.9 million, or 20 cents a share, a year ago. PanAmSat reported total third-quarter revenue of $210.7 million, a 13% increase over the $186.5 million recorded in the third quarter of 1998.
* MOTOROLA’S RESULTS
Chip and cellular phone firm met, but didn’t exceed, estimates. C3
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INTEL’S DROP
Intel shares fell to $71 Tuesday in after-hours trading after a disappointing earnings report. Weekly closes and latest: Tuesday: $76.69
After hours: $71.00
Source: Bridge Information Systems
