UPDATE 3-Intel net plunges, sees stronger second half
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(Adds analyst comments, details)
By Duncan Martell
SAN FRANCISCO, April 17 (Reuters) - Intel Corp. on
Tuesday reported a steep drop in first-quarter net income, but
the results were slightly better than expected and the world's
No. 1 chip maker offered upbeat comments about the second half,
sending its shares up 12 percent.
Intel said net income fell 82 percent to $485 million, or 7
cents per diluted share, in the quarter ended March 31, from
$2.7 billion, or 39 cents a share, a year earlier, due to weak
demand and slowing economic growth. The company, based in Santa
Clara, California, said sales in the quarter fell 16 percent to
$6.68 billion from $7.99 billion.
Despite a slowing U.S. economy, weakness in other parts of
the globe and waning spending on information technology, Intel
Chief Executive Craig Barrett said he believes its
microprocessor business -- 80 percent of the company's sales --
has stabilized. And Chief Financial Officer Andy Bryant told
Reuters in an interview that he saw "some good signs toward the
end of the quarter."
"The numbers themselves tell a pretty grim story so if
you're going to hang your hat on this, you have to believe the
qualitative commentary rather than the quantitative
information," said SG Cowen & Co. semiconductor analyst Drew
Peck. "A lot is going to hinge on how much credibility there is
in the comments made by Barrett that the microprocessor
business has stabilized."
Intel had already issued a grim profit forecast in March,
but its principal competitor in the market for microprocessors,
Advanced Micro Devices Inc. did not issue a sales
warning. It reports second-quarter results on Wednesday after
the close of regular trade.
SHARES RISE
Intel's shares rose to $28.93 in after-hours trading from
$26.04 at the end of the regular session on Nasdaq. Since the
end of last year, the stock has underperformed the Standard &
Poor's 500 Index by about 4 percent and the Philadelphia
Semiconductor Index by about 15 percent.
"The immediate reaction is going to be, 'Oh my God, Intel
said the world is just fine,'" said Lehman Bros. analyst Dan
Niles. "Obviously, they're painting a much different view than
most every other semiconductor company out there."
Intel also gave an unusually wide range for second-quarter
sales of $6.2 billion to $2.8 billion, meaning revenue will
fall 18 to 25 percent from $8.3 billion a year ago.
"You could drive a Mack truck through the revenue guidance
and to some extent, that's a good thing because they will most
likely get within that range," Niles said.
Excluding acquisition-related charges, net income fell to
$1.1 billion, or 16 cents a share, for the quarter ended March
31 from $3.04 billion, or 43 cents, in the year-earlier
quarter.
Analysts polled by research firm Thomson Financial/First
Call had estimated earnings before acquisition-related items
ranging from 14 cents to 15 cents a share, with an average
forecast of 15 cents. The sales forecast for Intel was $6.59
billion.
'MORE COMFORT'
"In our microprocessor business, given what we saw
happening in March gives us a lot more comfort that we'll have
a pretty normal second quarter and a seasonally strong second
half of the year," Bryant told Reuters in an interview.
"The first quarter was difficult at best," Bryant said. "In
March we saw a return to the time when customers started
ordering new product again."
Intel said that at the end of the quarter, microprocessor
inventories were just within its target, while, not
surprisingly, inventories of flash and communications chips
were above guideline and Bryant expects a rebound later this
year, but many are skeptical of a turnaround in that market any
time soon.
The company also reiterated its plans to spend $7.5 billion
this year on capital spending and $4.2 billion on research and
development, which should allow chip-equipment makers to
breathe a sigh of relief. Intel is inthe midst of changing
over its factories to using larger, dinner-plate-sized silicon
wafers and moving to thinner geometries on the chips.
On a conference call with analysts and investors, Intel
Executive Vice President Paul Otellini said that average
selling prices for desktop microprocessors such as its Intel
Celeron and Pentium 4 chips were little changed from a year
ago.
But he also said microprocessor shipments declined
significantly and cited the general economic weakness,
particularly in the United States, and bloated microprocessor
inventories among its customers who didn't need to buy new
chips from Intel.
"PCs are much less screwed up right now than the wireless
and networking areas," said Lehman Bros analyst Dan Niles.
PRICE WAR WITH AMD
Bryant also said that customers are now coming to Intel
wanting chips immediately, suggesting that their inventories
are coming back in line with their internal targets.
All well and good, but some analysts said they see more
pitfalls ahead.
"That the business has stabilized at what appears to be
lower levels is not a good sign," SG Cowen's Peck said. "The
microprocessor business is experiencing secular declines in
profitability."
Intel's gross margin -- or how much of each dollar of sales
is left after subtracting product and other costs -- was 51.7
percent in the first quarter and Bryant expects it to narrow to
49 percent in the second quarter, hurt by falling prices and
the Pentium 4 chip, which is more expensive to make than its
predecessor.
"We're in a new era of competition and aggressive pricing
is going to be the order of the day," Peck said. "That's why
margins are down and I don't see that improving."
REUTERS
Rtr 21:30 04-17-01 |
