Why the semi rally, on news like this? -->
Weak market may cause Intel cuts
By Reuters
June 20, 2001, 11:45 a.m. PT
LONDON--U.S. semiconductor maker Intel said Wednesday it needed to see a recovery
in the chip market within six months or it would consider cutting capacity and
investments next year.
Intel Chief Executive Craig Barrett, traveling through Europe this week, also said delays in
building factories in Israel and Ireland would not affect Intel's $7.5 billion investment plans this
year, but could affect next year's budget.
The U.S. company, by far the world's largest chipmaker, stands out as the only semiconductor
maker that has so far stuck to its investment plans, both in research as well as new factories
and equipment.
Alongside its investments in new factories, Intel has also said it would invest $4.2 billion in
research and development.
"We haven't changed guidance (to spend $7.5 billion in capital expenditure). But the slowdown
has modulated demand somewhat. If the slowdown hadn't occurred, we might have spent
more," Barrett told journalists here.
"My expectation is we'll watch what goes on in the next three to six months, and then if we
don't see any improvement at that time, we'll seriously look at both the installed infrastructure
we have plus what we want to spend on investment next year," Barrett added.
In Israel, Intel has put off a decision on a $3.5 billion chip plant, while in March it suspended
construction of a $2.2 billion facility in Ireland, which may come back on stream in 2002,
depending on demand.
Despite cascading profit warnings from rival chipmakers in recent days, Barrett saw no reason
to revisit Intel's midterm business update, made nearly two weeks ago.
Intel's update caused a sigh of relief when investors learned the company stood by an earlier
second quarter sales forecast of between $6.2 and $6.8 billion, down from $8.3 billion a year
ago.
Intel at a "stable bottom"
Barrett confirmed that the core of Intel's business, which comes from
computer-related products such as microprocessors and motherboards, still
looks stable, albeit at lower levels.
"We perceive that we're at a stable bottom of this trough. We're looking for
some seasonality in the second half, which should give some uptick. We're
kind of bouncing along at what we perceive as the bottom at this stage," he
said.
But he also said the economic slowdown was hurting the launch of the new
Pentium 4 microprocessor, which was quickly discounted after introduction
in an attempt to bolster sales.
"I wouldn't disagree that the economic slowdown has impacted the ramp of Pentium 4, and
even sales in the entire computer industry," Barrett said.
The upbeat market reaction to Intel's midterm update was the result of very low expectations
for an industry that is in its worst-ever slump. It has been quickly overshadowed by a host of
profit warnings from chip and telecommunications-equipment makers, which say European
customers have capped purchases, in line with their U.S. counterparts.
In just seven trading days, the Dow Jones European Technology Stoxx Index has fallen 21
percent from 560 points to 440 points in the wake of warnings from Finnish mobile phone
maker Nokia, Canada's telecommunications-equipment maker Nortel Networks and German
chipmaker Infineon Technologies.
Intel shrugged off some of that sell-off, but has nevertheless shed 13 percent, to $26.85, since
its update June 7.
However, Barrett suggested that rival chipmakers that had warned in recent days were finally
coming around to accepting the decline in revenues that Intel had predicted many months ago.
"I'm not sure our forecasts are that different from other people. A year ago our revenue was up
in the $8 billion plus range. The guidance we gave two weeks ago was that it was going to be
in the $6 billion range. To me that's a pretty substantial drop," Barrett said.
The fact that competitors were now predicting sales declines similar to Intel's lent some
support to the U.S. group's heavily criticized forecasting unit, which forced the company to
come out with a string of warnings last year.
Barrett came to its defense when he said no one had expected the severity of the decline when
it hit late last year.
Meanwhile, Intel had a reasonably clear outlook on its core computer business, which
generates some 80 percent of revenues, thanks to the maturity of that industry, which has
gone through many downturns and improved its inventories management.
"The computer industry is relatively stable from an inventory standpoint and a sales-out
standpoint. We have good insight into the inventories that our big customers have. There
doesn't seem to be a stack-up," Barrett said.
Intel's much smaller business for communications components, which generates the remaining
20 percent of sales through products such as opto-electronic chips and flash memory for cell
phones, was in dire shape.
"The communications side of the business is still in a dreadful state of flux. Cisco and Nortel
are very good customers of ours, and when they say they have many, many months of
inventory on hand of our products, we have some exposure." "The good news is that that part
of our business is only 20 percent of business at this time," Barrett said. |
