Intel profit falls; outlook is rosy
Intel Corp.’s third-quarter earnings show the company is getting better at doing more with less in the toughest stretch for the personal computer industry in nearly a decade.
The world’s No. 1 microprocessor maker said Tuesday that profit and sales both fell 8% in the July-to-September period, as the company was hurt by sluggish demand from businesses and lower prices for its chips. Intel insisted that things were improving, however, and offered better-than-expected guidance for the fourth quarter, sending its shares up as much as 5%.
As the first major technology company to report third-quarter earnings, Intel’s numbers will lend insight into the strength of PC makers’ demand for new chips. What the figures don’t necessarily show, though, is whether PC companies are stocking up on chips to replenish low supplies or whether they expect especially brisk sales of computers. That will begin to play out in the coming weeks as the holiday season gets underway and a new edition of Windows comes out Oct. 22.
Intel’s chief financial officer, Stacy Smith, said demand from consumers for PCs has been strong, but spending by corporations remained weak. He said Intel doesn’t expect business spending on PCs to pick up again until next year.
Intel said after the market closed that its net income was $1.9 billion, or 33 cents per share. Analysts had expected 28 cents per share, according to a poll by Thomson Reuters. Intel’s profit was $2 billion, or 35 cents a share, in the year-ago period.
Sales were $9.4 billion, better than Wall Street’s forecast of $9 billion.
Intel had bumped up Wall Street’s expectations twice. The first time was in August, when it raised its guidance, and the second was last month, when Chief Executive Paul Otellini predicted that PC sales could defy predictions by growing in 2009, which would avert the first year-over-year sales decline since 2001.
Still, the company’s latest numbers show the recession continues to take a toll, even as Intel gets more skillful at wringing more out of its business. The company’s gross profit margin was 57.6% of revenue. Its previous forecast was for 51% to 55% of revenue, and in the last quarter the figure was 50.8%.
Gross margin is especially important for a manufacturing-intensive company such as Intel because it measures how well a company is controlling its costs.
Another challenge for Intel comes from one of the PC industry’s hottest segments: netbooks, small laptops that have limited functions beyond surfing the Internet. They aren’t big moneymakers for PC makers and their suppliers, such as Intel, because netbooks cost less than full-size computers and can cannibalize sales of more expensive machines.
For the fourth quarter, Intel forecast sales of $10.1 billion, plus or minus $400 million. Analysts expected $9.5 billion.
Intel shares jumped $1.04, 5.1%, to $21.53 in extended trading. Before the earnings report, the stock had closed at $20.49, up 9 cents on the day.
