Friday June 18, 7:59 pm Eastern Time
Intel shares fall on delay of new Pentium III
SAN FRANCISCO, June 18 (Reuters) - Shares of Intel Corp., the world's largest maker of computer chips, fell on Friday after an analyst downgraded the stock and cut earnings estimates, due to a manufacturing problem that will delay a new Pentium III.
Mark Edelstone, an analyst with Morgan Stanley Dean Witter, said he lowered his earnings estimates on Intel for 1999 and 2000, due to an expected delay of the company's 600 megahertz version of its Pentium III processor, developed using a new manufacturing process called 0.18 micron, by a few months.
''Based on our belief that Intel's product delays will likely lead to a lower-than-expected average selling price for its overall (microprocessor) portfolio, we have modestly reduced our 1999 and 2000 earnings estimates,'' Edelstone said in a note to clients.
Edelstone cut his 1999 estimates to $2.25 a share, from $2.35 previously, and he cut 2000 estimates to $2.55 a share, from $2.60 a share previously. He said the chip, which was targeted for a September launch, will now ship in November.
An Intel Corp. spokesman confirmed that the Santa Clara, Calif.-based company is now planning to deliver its Pentium III processor for the desktop PC market running at 600 megahertz, code-named Copper Mine, a few months later than expected.
''We set aggressive frequency targets that we haven't been able to reach yet,'' said Intel spokesman Tom Waldrop, meaning that Intel is not able to manufacture the chip running at the speed of 600 megahertz, which would be Intel's fastest yet. He declined to be more specific about the availability dates.
Waldrop said that Intel is in a quiet period ahead of second quarter earnings, but he added that the delay in one version of the Pentium III would not have a material impact on its financial results.
He also said that the company will have a 600 megahertz Pentium III designed around its current 0.25 micron manufacturing process this summer, which is sooner than previously expected. ''We can deliver those in really good volume,'' Waldrop said.
Edelstone said that Intel's yields on the desktop version of the Pentium III using the new 0.18 micron process are not sufficient to release the product into production. Yields refers to the good parts actually ready for shipping.
''It is pretty unusual for them,'' Edelstone said. ''Their manufacturing execution has been pretty stellar over the last three to five years.''
Edelstone also said he downgraded Intel's shares to an ''outperform'' from a ''strong buy,'' even though he believes Intel's shares are undervalued right now, to reflect the potential earnings and competitive risks associated with the slower-than-expected ramping up of the manufacturing process.
He also pointed to upcoming competition from rival Advanced Micro Devices Inc. which is expected to begin shipping its next generation processor, called the K7, later this month.
''This is not what Intel needs,'' Edelstone said.
Intel said it still plans to have other Pentium III processors manufactured with the 0.18 micron process in the second half of the year, such as the versions for mobile computing, servers and workstations and a smaller form version for some of the more creatively designed PCs.
''All will be out in the second half,'' Waldrop said. The mobile chip, however, will also have a slower clock speed, and will come out at 500 megahertz, instead of 600 megahertz as previously planned.
Intel's shares were the most actively traded on the NASDAQ and fell $3.0625 to $54.9375. Shares of Sunnyvale, Calif.-based AMD tacked on $0.43375 to $18.75, on the NYSE.
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