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Intel Profit Little Changed After Missing Demand (Update1)
Oct. 18 (Bloomberg) -- Intel Corp., the world's biggest semiconductor maker, said profit was little changed after the company failed to meet demand for some chipsets and recorded a tax expense. Intel forecast sales that may miss analysts' estimates.
Third-quarter net income rose to $2.0 billion, or 32 cents a share, from $1.91 billion, or 30 cents, a year earlier, Santa Clara, California-based Intel said today in a statement. Sales rose 18 percent to $9.96 billion.
Two personal-computer makers have begun to build inventory, Chief Financial Officer Andy Bryant said in an interview, a sign that demand may be waning. Intel's revenue forecast of $10.2 billion to $10.8 billion for this quarter fell short of the average $10.7 billion estimate. Intel in the third quarter was unable to keep up with orders, costing the company sales.
``There was a very minor disappointment in the revenue projection,'' said Mike Green, a money manager at Benham & Green Capital Management in La Jolla, California, who holds Intel shares among $100 million under management. ``I'm looking for a little stronger fourth quarter than what the company is pointing to. Everything else sounds like it is in-line.''
Intel shares, up 1.4 percent this year, fell 42 cents to $23.30 in extended trading. They earlier rose 26 cents to $23.72 in Nasdaq Stock Market composite trading.
Building Inventory
``A couple of our larger customers'' have built up inventory, Bryant said in a telephone interview. That helped bolster the third quarter he said. ``Performance was about as good as one could have hoped for,'' Bryant said.
Profit included a tax expense of 4 cents a share and legal costs of 2 cents. Intel in July said it will pay $250 million in taxes on about $6.3 billion in profit earned overseas. The company also expensed $140 million of a $300 million settlement with MicroUnity Inc.
Gross margin, or the percentage of sales left after subtracting cost of production, was 59.7 percent including the settlement and 61.1 percent without. Gross margin this quarter will be about 63 percent, Intel said.
While Chief Executive Officer Paul Otellini's focus on feeding notebook demand computers helped revenue rise to a record, it left the company unable to keep up with demand for other products.
After overestimating demand and racking up a record stockpile of unsold chips last year, Intel last quarter was caught without the capacity to churn out both new Centrino chipsets for laptop computers and older processors for cheaper systems, said Hans Mosesmann, an analyst at Moors & Cabot Inc. in New York.
Shortage
``There's a shortage of core logic chipsets,'' said Mosesmann, who rates Intel shares ``buy'' and said he doesn't own the stock. ``There is incremental demand coming out of emerging markets which is low-end desktops.''
Intel's semiconductors, microprocessors that work as the engine in computers, power more than 80 percent of the world's personal computers, making the company a bellwether for computer- related stocks. International Business Machines Corp., the largest provider of services related to computers and No. 2 software maker behind Microsoft Corp., yesterday posted earnings that exceeded analysts' estimates.
PC Demand
Companies are benefiting from increasing demand for PCs. Sales of PCs may rise almost 12 percent in 2005, rather than the 10 percent expected at the beginning of the year, said John Lau, an analyst at Jefferies & Co. Lau, based in New York, rates Intel a ``buy'' and said he doesn't own it.
The return to school in the U.S. and Europe also prompted sales in the quarter.
``Back-to-school sales have been good on the PC side and laptops have been strong,'' said Patrick Becker Jr. of Becker Capital Management in Portland, Oregon, which manages $2.4 billion and owns Intel shares.
Laptop shipments from Taiwan, where three out of four notebooks are made, jumped 41 percent in the third quarter, he said. Analysts often look to Taiwan for early indications of Intel's revenue gains.
The demand drove sales of Intel's Centrino notebook chipset, which provides high-speed wireless access and prolongs battery life. Centrino chips are more profitable than regular desktop processors and give Intel profit margins that are 10 percentage points higher than those for desktops, according to UBS AG's Thomas Thornhill, a San Francisco-based analyst who rates the stock ``buy'' and said he doesn't own it.
``Notebooks are a bigger part of the whole,'' said Pierr Johnson, an analyst at John Hancock Advisers in Boston, which manages $27 billion, including Intel shares. ``The restraints that exist right now are on the chipsets that are manufactured on older technology.'' |
