The following may help explain today's weakness:
(Compaq mentioned near end of article)
Intel Q3 Profit Expected to Rise Modestly
By Kourosh Karimkhany
SANTA CLARA, Calif. (Reuters) - Intel's earnings growth is expected to slow in the
third quarter as sales of popular low- cost personal computers are eroding the chip
maker's profitability, industry analysts said.
Intel, the world's biggest computer chip maker, is caught between two conflicting
forces. On one hand, the company is increasing production of the Pentium II, a super
fast and highly profitable chip designed for powerful computers.
On the other hand, consumers are buying loads of PCs selling for less than $1,000,
putting pressure on PC makers to buy less expensive chips and other components from
suppliers such as Intel, which is due to report earnings today.
Intel has been cautious in terms of the product transition," said Ashok Kumar, analyst at
brokerage Southcoast Capital. The trendline on the average selling price of
microprocessors will fall."
While about 20 percent of the chips that Intel sold in the third quarter were Pentium IIs --
which sell for up to $851 -- the average price for all Intel microprocessors will fall to
about $215 in the quarter from $255 in the second quarter, Kumar said.
Unit shipments are expected to rise, but microprocessor revenue is expected to rise only
marginally to $4.7 billion from $4.6 billion in the second quarter," he said.
When Intel reports its earnings Tuesday afternoon, Wall Street expects earnings per
share of 91 cents on average, according to a recent survey by Zacks Investment
Research.
In the same quarter a year ago, Intel reported net income of $1.31 billion, or 74 cents a
share, on revenue of $5.14 billion. Intel's earnings rose about 58 percent in the second
quarter and more than doubled in the first quarter of 1997.
So far this year, unit shipments of personal computers have been strong, boosting many
technology stocks, including Intel, Compaq Computer and Microsoft.
But in recent weeks, investors have become concerned about steeper-than-expected cuts
in prices for memory chips, networking gear and PCs, which could hurt profits at many
high- tech companies. |
