Newswire: Intel Corp. late Wed. warned that its first-quarter earnings will fall short of Wall Street estimates, with revenue slipping 10% from the fourth quarter's $6.5 billion, because of weak demand for its microprocessors by computer makers.
Intel, which has had to cut chip prices faster than in the past to keep up with increasing demand for less-expensive PC's, also warned its profit margin would decline by six percentage points on a quarter-to-quarter basis.
After the close of U.S. stock markets Wed., the world's largest chip maker projected that its gross margin for the first quarter would fall to 53% from the fourth quarter's 59%. Intel said it sees a long-term margin of about 50%. The company's profit margins, or net sales minus the cost of goods, for 97' averaged about 60%.
The company's margin and revenue estimates are significantly lower than earlier projections, made on Jan.13. At that time, Intel said it expected gross margins to fall a few percentage points from fourth quarter levels, because Pentium II chips cost more to make than its earlier line of chips. Intel also said in January that revenue would be sequentially flat at $6.5 billion.
Intel didn't disclose specific earnings estimates for the current period. A first Call survey of 31 analysts who cover Intel's stock yielded a mean earnings estimate of 93 cents a share for the latest quarter, which ends March 29. In the year-ago first quarter, Intel earned $1.98 billion, or $1.10 a share after a 2-for-1 stock split, on revenue of $6.45 billion.
Analysts late Wed. said they expect Thurs. to be a messy day for technology stocks, given Intel's bellwether status.
In after-hour trading Wed, Intel's Nasdaq-listed stock (INTC) was quoted at $77, down nearly 10% from its Tuesday close. At the end of regular trading Wed., the stock was at $86.438, up $1.125 from the previous close but down 8.0% from its closing price of $94 one week ago.
Intel also said its acquisition of Chips & Technologies Inc. will result in a first-quarter charge of $165 million, or nine cents a share, to write off in-process research and development.
Santa Clara-based Intel said research and development costs for the year will total about $3 billion, up from the Jan.13 estimate of $2.8 billion and up from $2.3 billion a year ago. Intel said first-quarter R&D costs will tally about $1.4 billion.
Intel projected that first-quarter expenses would rise 3% from the fourth quarter level of $1.4 billion, contradicting the company's prediction in Jan. that expenses would fall sequentially by 2%-5%. The company attributed the unforeseen run-up in costs to the Chips & Technologies charge.
Capital spending for 98', Intel said, should rise to $5.3 billion from $4.5 billion in 97', while depreciation would rise to about $2.7 billion for the year, including $580 million in the first quarter, from $2.2 billion in 97'. Intel said interest and other income for the first quarter would be about $175 million, with the 98' tax rate at about 34% before the charge.
Investors have fretted over Intel's stock since Oct., when fears arose over Intel's exposure to falling PC prices, particularly a new generation of computers priced at less than $1,000, and a possible meltdown in PC sales in Asian markets because of currency and economic crises.
Some analysts expressed concern in January that the company's remarks at the time were evidence of additional hurdles ahead. Intel's average selling prices which accounted for 32% of U.S. retail sales in Nov, according to Computer Intelligence Infocorp. Intel also must launch lower-cost chips to penetrate markets for a new breed of network computers for businesses and digital TV set-top boxes.
According to Cowen & Co. analyst Drew Peck, "Unit demand for PCs is OK, but one would expect it to be much stronger given the price declines," he said.
"Prices are going down but unit sales aren't going up enough to offset" the impact.
Peck also said he expected to lower his earnings estimate for Intel to the "vininity" of 70 cents a share. |
