Intel Corp. said Wednesday that second-quarter profit plunged 94% from a year ago as consumers slowed their purchases of personal computers, but the top computer-chip maker predicted a comeback in the second half of the year.
Santa Clara, Calif.-based Intel's earnings fell to $196 million on sales of $6.3 billion, down from $3.14 billion on sales of $8.3 billion in the same period last year.
Without acquisition-related charges, the most recent profit of $854 million, or 12 cents a share, topped Wall Street estimates of 10 cents a share that had been guided down by the company. But most of that was because of a much lower tax rate.
"The quarter was about in line with the guidance," said U.S. Bancorp Piper Jaffray analyst Ashok Kumar. Gross profit margins fell more than Intel had expected as rival Advanced Micro Devices cut prices.
Intel shares slipped 50 cents to $29.40 in after-hours trading. They had risen 77 cents to $29.90 on Nasdaq before the earnings release.
Intel executives said that they were seeing a return to normal seasonal buying patterns for the chips that power most desktop and laptop computers, but that Intel's communications components and memory chips for cellular phones and other small devices continued to suffer. Those sales haven't been profitable.
Microprocessor shipments increased by 6% from the first quarter, but revenue in that core division was flat because of falling prices.
The second quarter is traditionally the weakest for computer and chip companies, which are counting on the October release of Microsoft's Windows XP operating system to draw customers back to stores.
"Going into the third quarter, I think we're all cautiously optimistic," Intel Executive Vice President Paul Otellini told analysts and investors on a conference call.
He said revenue in the third quarter should be $6.2 billion to $6.8 billion, in line with previous projections. Average prices will keep falling, he said.
Not all analysts were convinced, as Intel has lowered its projections in the middle of each of the last four quarters.
"The company is banking on seasonal trends lifting the results," Kumar said. "But a lot of their recovery is dependent on the U.S. economic recovery."
Otellini said that U.S. demand was stabilizing and that Western Europe remained weak.
"I would categorize the consumer markets worldwide as being spotty," he said. "China, India and Latin America are very strong."
Some big computer companies have reported problems in China, however, and analyst Charles Glavin of Credit Suisse First Boston said India is getting worse.
Intel said the company kept its 80% market share for microprocessors during the quarter.
"They maintained the market share, but at what cost?" Glavin said. "Average selling prices are coming down, and margins are coming down."
Intel said it will speed up the roll-out of its high-end Pentium 4 processor, putting the chips in computers selling for more than $800 by the end of the year.