Intel Beats Lowered Fourth-Quarter Profit Estimates
Intel Corp. bettered Wall Street’s already lowered profit expectations in the fourth quarter, but the chip giant warned that its sales would fall 15% in the first quarter because of a continuing slowdown in the economy.
“It’s just really difficult to call whether it’s a slowdown or a recession,” Intel Chief Financial Officer Andy Bryant told Reuters. “There’s just an economic blanket over the world right now, and we’ll see what happens when things pick up again.”
Intel said the company’s gross margins, or the percentage of sales left after subtracting manufacturing costs, will drop sharply from 63% in the last quarter to 58% in the current quarter. Intel blamed an oversupply of PCs in the market, plus a slowing economy, for most of the problem.
Intel’s stock lost 75 cents to close at $31.38 in regular Nasdaq trading Tuesday; it rose to $31.75 in after-hours trading. The Santa Clara, Calif.-based company’s stock has lost nearly 60% of its value since hitting a 52-week high of $75.81 in August.
“Intel is entering the first quarter with the worst visibility and momentum in recent memory,” said U.S. Bancorp Piper Jaffray analyst Ashok Kumar.
To cut costs, the world’s leading chip maker said it will end production at a Puerto Rico circuit-board plant by the middle of the year. Bryant said the “vast majority” of the factory’s 1,360 workers will be fired. Those willing to move could be offered other jobs at Intel, though this is the chip maker’s only operation in Puerto Rico. The company employs 80,000 people worldwide.
Analysts agreed that slack demand in the PC market was the company’s biggest headache.
“Demand in the personal computer market appears to be approaching its weakest condition in nearly 15 years,” Jonathan Joseph of Salomon Smith Barney wrote in a recent research note.
Intel also has suffered a series of technology missteps since June, including being unable to meet demand for its chips. This allowed resurgent rival Advanced Micro Devices to pick up market share. But now Gateway and most other PC makers are holding excess inventory, compounding the chip maker’s troubles.
“When the market is going well and you can sell everything you can make, it hides a multitude of sins. You can have a bad part and still sell it,” said Dean McCarron, an analyst with Mercury Research in Scottsdale, Ariz.
Intel held some 81.7% of the share of PC microprocessors for computers that operate Microsoft Windows in the last quarter, compared with 17.0% for AMD, according to Mercury estimates. In the quarter a year earlier, Intel held 82.5% and AMD 15.9%.
The head-to-head competition is expected to heat up in 2001. AMD now offers a complete product line of processors to compete with Intel’s, and experts say AMD’s chips compare favorably on several key performance measures.
In the fourth quarter, Intel reported profits of about $2.6 billion, or 38 cents per share, excluding one-time gains and losses, compared with $2.4 billion, or 34 cents, a year earlier. Analysts polled by First Call/Thomson Financial had expected 37 cents in the latest quarter. Intel’s sales totaled $8.7 billion in the fourth quarter, compared with $8.2 billion a year before.
For all of 2000, Intel reported record earnings of $10.4 billion on sales of $33.7 billion; these figures were up from $9.8 billion and $29.4 billion, respectively, in 1999.
Last month Intel cut its fourth-quarter forecast as slack demand hurt sales of almost all products
Bloomberg News and Reuters contributed to this report.
At a Glance
Other earnings, excluding one-time gains or charges unless noted, include:
* Applied Micro Circuits Corp., which makes communications chips for high-speed networks, said its fiscal third-quarter operating profit soared to $48.1 million, or 16 cents a share, from $12.1 million, or 5 cents, a year ago, beating analyst estimates by 2 cents. Revenue climbed to $143.3 million from $45.8 million.
* Handspring Inc. said its fiscal second-quarter loss narrowed much more than expected to $7 million, or 7 cents a share, from $3.8 million, or 12 cents, a year ago. The maker of Visor electronic organizers said sales climbed to $115.6 million from $15.8 million, well beyond its forecast of $105 million. Analysts on average anticipated a much deeper loss of 16 cents.
* Juniper Networks Inc., maker of network routers and equipment, said its fourth-quarter earnings climbed to $84.6 million, or 24 cents a share, from $4.77 million, or 1 cent, a year ago, handily beating analyst expectations of 18 cents. Revenue soared to $295 million from $45 million.
