Intel's Barrett Losing Confidence in PC Rebound, Investors Say
By Cesca Antonelli
Santa Clara, California, Oct. 15 (Bloomberg) -- Intel Corp. Chief Executive Craig Barrett, who's tried without success to shore up computer-chip demand with price cuts and faster processors, may have to wait another year for a turnaround.
``We're not expecting anything dramatic out of them until business spending picks up, which is probably six to nine months out,'' said Shawn Price, who helps manage $5 billion at Navellier & Associates. Navellier cut its Intel stake this year.
Barrett has been sending signals that he's less confident about a pickup in personal-computer demand. He told analysts in March to ``wait and see.'' In August, he said the annual holiday- shopping bounce in PC sales might not materialize this year. Then, Oct. 6, he said a recovery won't come until early 2003.
Shareholders are steeling themselves for an even longer wait. Analysts expect third-quarter sales to slip, which would mark the sixth quarter in seven that revenue has fallen. A U.S. economic rebound is fading as consumers lose confidence and manufacturing slows, and Intel's more powerful chips have failed to jump-start sales because home and business users are skipping PC upgrades.
Analysts expect Intel today to say third-quarter profit, before certain costs, was 13 cents a share on sales of $6.52 billion, the average estimates in a Thomson First Call survey. Santa Clara, California-based Intel said Sept. 5 that sales would be $6.3 billion to $6.7 billion. A year earlier, Intel had net income of 2 cents on $6.55 billion in revenue.
Intel shares have lost more than half their value this year. They fell 12 cents to $15.10 yesterday on the Nasdaq Stock Market.
Aging PCs
Spending on computer-related gear slipped last year as corporations delayed purchases while their own profits dropped, and investors said they're again revising forecasts for when companies will start replacing PCs bought in the 1990s.
Barrett, who declined to be interviewed for this story, has tried to fight back by focusing on regions such as Asia, where orders are growing. He's kept Intel's tradition of reducing prices, with more cuts expected this month, and updated television commercials to show how faster PCs can ``change your life.''
Customers haven't taken the bait. Most users don't need the 3- gigahertz Pentium Barrett plans for the holiday season, investors said. Shareholders expect only a small boost in orders, for systems that sell for less than $1,000 or those sold with giveaways such as free shipping.
``You're really lacking any sort of real catalyst'' for sales, said Patrick Becker, whose Becker Capital Management owns Intel shares and manages $1.5 billion. ``The latest chip is 3 gigahertz. For most users, 500 megahertz works very well.''
At a Gartner seminar last week, about 250 technology managers were asked whether they'd slowed the pace of PC replacements in their companies. Half raised their hands.
Waiting for `Y10K'
Barrett cut processor prices by as much as 63 percent in August, and analysts expect more reductions Oct. 27. Three new TV ads, which ask ``Can a better computer really change your life?'' and answer ``Yes,'' began last month.
``There is always some anticipation of a holiday season up- tick in computer sales, but whether that materializes or not is a question mark,'' Barrett told Bloomberg Television in August.
Investors will be watching Intel's fourth-quarter forecast for clues about holiday orders. Researcher IDC estimates that PC shipments will rise 3.6 percent this quarter from a year earlier. That compares with an increase of 9.3 percent in fourth quarter of 2000, the first year of the slump, and an average gain of 18 percent in the fourth quarters of 1996 to 1999, IDC said.
The PC market is unlikely to grow that fast again, analysts said. Businesses rushed to buy PCs in the late 1990s to avoid the Year 2000 computer glitch that was expected to shut down systems.
``We're not going to have the extraneous driver of Y2K until we hit Y10K,'' said Eric Ross, an Investec Inc. analyst who doesn't own Intel shares.
Nine Months Out
That's left Barrett and his PC clients chasing sales in untapped regions of the world. PC sales in Asia will surge 18 percent in the fourth quarter, compared with a 2.7 percent slide in the U.S., according to IDC. Emerging markets will make up 40 percent of PC sales by 2006, Intel has said.
Barrett, 63, who received $1.7 million in salary and bonus in 2001 and got 484,696 stock options, says the answer is to boost PC use. Intel spends 45 percent of its venture-capital money outside North America, up from less than 5 percent in 1998.
He's starting 70 ``clubhouses'' in cities like Mumbai, India, that teach children to use PCs, and training classes that reach 600,000 teachers, with the biggest programs in China and India.
That's not enough to convince investors the PC's heyday hasn't passed. PC sales will only rise 5 percent to 10 percent a year going forward, even when shipments are good, analysts say.
``Demand is going to be lackluster,'' said Becker, who hasn't bought Intel shares since the early 1990s and says the stock is too expensive.
Intel Long |
