Intel Says First-Quarter Net Fell 82%, But It Predicts a Brighter Second Half
By DAN GOODIN
Staff Reporter of THE WALL STREET JOURNAL
Intel Corp. reported one of its worst quarters in years but predicted a better second half based on signs the market for personal-computer chips had stabilized.
The Santa Clara, Calif., chip maker blamed an 82% decline in first-quarter earnings on weakness in the broader economy. Still, Intel "did see some good news in the ordering pattern in the end of the quarter" by customers, said Andy Bryant, the company's chief financial officer.
Investors seemed to like that prognosis. Intel shares were up about 11%, or $2.93, to $28.97 in after-hours trading. Prior to the announcement, they were down 26 cents at $26.04 in 4 p.m. trading on the Nasdaq Stock Market Tuesday. The company's shares are sharply off their 52-week high of $75.81.
Intel's net income for the quarter fell to $485 million, or seven cents a diluted share, from $2.70 billion, or 39 cents a share, in the year-earlier period. Revenue was $6.68 billion, down 16% from $7.99 billion in the first quarter of 2000 and a 23% decline from the fourth quarter.
Excluding acquisition-related costs, Intel said its earnings would have been 16 cents a share, a penny better than analysts' already lowered consensus of 15 cents a share, according to Thomson Financial/First Call.
Intel forecast revenue for the current second quarter of between $6.2 billion and $6.8 billion, about flat with first-quarter revenue and between 18% and 25% lower than the year-earlier quarter.
Intel's gross profit margin in the first quarter fell to 51.7% from 63% in the fourth period; the company predicted that margin in the second quarter would slide to around 49%, and would average about 50% for all of 2001.
Paul Otellini, executive vice president in charge of Intel's architecture group, told analysts during a conference call that the company had recently been seeing positive signs about sales of microprocessors -- the computing engine for most popular PCs -- and prospects for coming products.
"We believe that our PC-related businesses have bottomed out and are planning for a seasonally stronger second half," he said. "Our computing product road map is the strongest in our history."
Some analysts took Intel's optimism as a sign that the company's revenue slide had finally hit rock bottom. "It's good news because it's not as bad as it could have been," said Jonathan Joseph, an analyst who follows the company at Salomon Smith Barney. The company has come out of "their worst quarter in years relatively unscathed."
But Mark Edelstone, an analyst at Morgan Stanley Dean Witter who slashed earnings projections for Intel earlier this week, remained glum, saying his own research indicates that business in early April has declined compared with March, when Intel saw signs of hope in distribution channels. "Whether or not Intel has extrapolated too much out of the data points at the end of the quarter is the real question mark," he said.
Lehman Brothers analyst Dan Niles argued that a pickup in orders may only reflect the fact that Intel customers have finally flushed out swollen inventories of chips, not that their own sales are improving. "The real question here is what does global demand for PCs look like?" he said.
Intel's market share has taken a beating, dropping to 77.1% in the first quarter from 81.5% in the fourth quarter of 2000, according to Mercury Research Inc. Intel competitor Advanced Micro Devices Inc. was one reason; its market share shot up to 21.2% in the quarter, from 17.1% in the previous quarter.
Due to the vigorous competition and slump in spending for information-technology products, Intel is expected to slash prices on its most powerful chips by as much as 60%. Average prices for Intel products have already been dropping, hitting about $172 in the first quarter of 2001, a 6% decline from the previous quarter, U.S. Bancorp Piper Jaffray analyst Ashok Kumar estimated.
Word of the cuts prompted some analysts to worry that Intel's already lowered gross margins would be further squeezed. In its conference call with analysts, Intel agreed that efforts to drive its Pentium 4 into the mainstream would lower margins in the short term.
While citing optimistic signs about the PC market, Intel Chief Executive Craig Barrett noted that the company is experiencing "continued softness" in its communications-chip business. The company said that inventories for communications products remain high. To hold down costs, the company disclosed it is deferring management salary increases.
But the company isn't slowing down spending on production processes to make ever-faster chips. Intel said it is on track to invest $7.5 billion in new plants and equipment this year.
Besides earnings from operations, Intel said gains on equity investments and interest were $264 million in the quarter -- higher than previous expectations of $180 million -- and included a $45 million pretax gain from an accounting change.
Write to Dan Goodin at dan.goodin@wsj.com |
