INTC ($29) P/E 24 Beats by 2 Cents, Gives wide guidance for current quarter.
Tuesday July 17 9:01 PM ET
Intel's Profits Fall 76 Percent
By Duncan Martell
SAN FRANCISCO (Reuters) - Intel Corp. (NasdaqNM:INTC - news) on Tuesday reported second-quarter profits that plunged 76 percent as the world's largest semiconductor maker was hit by the triple-whammy of a slowing economy, slack PC sales, and a stinging price war.
But Santa Clara, California-based Intel also forecast that sales in the third quarter would be $6.2 billion to $6.8 billion, compared with $6.3 billion in the second quarter. That range, while very wide, did provide some comfort that sales will rebound in the second half of the year.
``Their guidance is very wide, very broad,'' said Justin McNichols, portfolio manager with San Francisco-based Osborne Partners Capital Management, which owns Intel stock. ``What the bulls were hoping for would be some kind of flat guidance and, in a roundabout way, that's what they got.''
For the quarter ended June 30, Intel said that net income, excluding acquisition-related costs, fell to $854 million, or 12 cents per share, from $3.5 billion, or 50 cents a year ago. Year-ago results include a $2.1 billion gain from the sale of investments. Sales fell to $6.3 billion, down 24 percent from the year-ago $8.3 billion.
The results came at the high end of the range of per-share estimates of 8 cents to 13 cents expected by 24 analysts surveyed by Thomson Financial/First Call. The mean per-share forecast was for net income excluding one-time costs of 10 cents.
Following the announcement, Intel's shares were slightly lower in after-hours trading on Instinet at $29.67 from their Tuesday close of $29.90. The shares have tumbled from a record high of $75.81 in late August of 2000, when demand first started to slow in the high-tech sector and others.
Including the acquisition-related costs, Intel had second-quarter net income of $196 million, or 3 cents a share.
MICROPROCESSORS SAVE THE DAY
The results could have been worse were it not for the company's microprocessor shipments, which came in higher than Intel had expected, Chief Financial Officer Andy Bryant said in an interview.
``We actually saw microprocessor unit shipments grow by about 6 percent sequentially,'' in the second quarter, Bryant said -- quite a bit higher than seasonal norms. ``This gives us confidence that the stronger seasonal second half that we typically experience will happen.''
At the same time, average selling prices for its Pentium and Celeron chips declined, and will continue to do so in the third quarter, Bryant said on a conference call.
``They set a pretty high bar for themselves in terms of the third quarter,'' said Lehman Bros. analyst Dan Niles. ``Some of the numbers they gave are hard to reconcile with the data we're getting from the PC vendors.''
Microprocessor shipments for both AMD and Intel were up sequentially in the second quarter, while some such as Compaq Computer Corp. lowered second-quarter forecasts, citing a weak commercial and consumer PC market. This could suggest inventory is building among customers, which Intel said wasn't the case.
Sales of its flash memory chips, as well as its communications and networking products, were less than Intel had expected, but Bryant said demand for flash should rebound sometime this year. AMD's flash chip sales were also far lighter than it had expected.
Intel also said that its gross margin, or the percentage of sales remaining after subtracting product costs, will be 47 percent in the third quarter, ``plus or minus a couple of points,'' and down from the third quarter's 48 percent. For the full year, Intel now sees gross margin percentage of 49 percent, down from an earlier forecast of 50 percent.
WAR, WHAT IS IT GOOD FOR?
Intel's results have also been bruised by a crippling price war with Advanced Micro Devices Inc. (NYSE:AMD - news), in turn slashing prices to either build or maintain market share.
And Intel is showing no signs of letting up. By the end of the year, Intel executive vice president Paul Otellini told Reuters in an interview he expects mainstream PCs using the Pentium 4 microprocessor will cost $799 and up.
``They're trying to drive a stake through AMD's heart,'' said US Bancorp Piper Jaffray analyst Ashok Kumar, adding that Intel is seeking to have the entry point for the Pentium 4 to be at 1.4 Gigahertz, speeds where AMD has trouble making chips profitably.
Otellini said pushing the Pentium 4 all the way into the mainstream was possible because of Intel's investments in chip plants, strong yields of the Pentium 4 on using 0.18 micron process technology, and because the company is ahead of schedule with the Brookdale chipset, which incorporates SDRAM memory.
Preliminary market research figures from Mercury Research show AMD with 22 percent of the market for microprocessors at the end of the second quarter, up from 16 percent a year ago. Intel's share was 76 percent, down from 83 percent.
Otellini took issue with Mercury's figures, saying that the research firm didn't have Intel's data. ``Mercury was wrong. They didn't have our data,'' Otellini said. ``I suspect they'll revise it soon, though.''
It's been a rough year for Intel. In each of the previous three quarters, the 33-year-old chipmaker has had to warn of lower sales as demand for PCs slowed.
``Quite honestly, I'm surprised Intel was this bullish going into the summer, given that most of Intel's pre-announcements in the past tend to come in the third quarter,'' Niles said. |
