Intel Profit Drops 90% on Writedown, Shrinking Demand (Update2)
By Ian King
Jan. 15 (Bloomberg) -- Intel Corp., the world’s biggest maker of semiconductors, said fourth-quarter profit dropped 90 percent after the recession curbed demand and forced the company to write down the value of its investments.
Net income fell to $234 million, or 4 cents a share, from $2.27 billion, or 38 cents, a year earlier, the company said today in a statement. Revenue may be about $7 billion this quarter, Intel said, without providing an official forecast. Analysts had estimated sales of $7.18 billion on average in a Bloomberg survey.
Intel faces its worst slowdown since the 2001 slump that followed the dot-com bust. As demand for personal computers stalls, manufacturers are working through their existing supplies of chips, rather than ordering new ones. Still, the lean inventories could help the industry rebound more quickly when the economy turns around.
“The PC sector was the first to go into the decline and I would expect it would be the first to stabilize,” said Cody Acree, an analyst at Stifel Nicolaus & Co. in Dallas. He recommends buying the shares, which he doesn’t own.
Intel, based in Santa Clara, California, rose 34 cents to $13.63 in late trading after closing at $13.29 on the Nasdaq Stock Market. The stock lost 45 percent of its value last year.
Spending on new plants and equipment will be little changed or slightly down from 2008’s $5.2 billion, the company said. It is budgeting about $5.4 billion for research and development, and expects a tax rate of 27 percent.
No Sales Forecast
Intel didn’t provide its usual sales forecast because the current economy makes it difficult to predict demand. The $7 billion figure was just for internal purposes, the company said.
“Until we get through the inventory correction element of this, it’s hard to get a sense of what the demand levels look like,” Chief Financial Officer Stacy Smith said in an interview.
Intel’s gross margin, the percentage of sales remaining after taking out production costs, was 53 percent last quarter. This quarter the figure will be in the low 40s, reflecting a slowdown in production and a switch to new manufacturing technology.
“The fact that they were able to hold gross margins where they did, given the magnitude of the revenue decline, all things considered, is pretty good,” said Mike Shinnick, a portfolio manager with Wasatch Advisors Inc. in South Bend, Indiana, which owns Intel shares as part of its $4.2 billion under management.
Clearwire Investment
Fourth-quarter revenue tumbled 23 percent to $8.23 billion, Intel said, echoing a preliminary report last week. The results included a writedown of about $1 billion in its investment in Clearwire Inc. That company lost 64 percent of its value last year.
Analysts had predicted fourth-quarter earnings of $245.3 million, or 4 cents a share, according to the Bloomberg survey. For 2009, sales will be $30.5 billion, down about 20 percent from 2008, they estimate. That would be the worst decline since 2001.
“It’s very difficult to say when demand comes back,” said Daniel Berenbaum, an analyst at Auriga USA in New York. He recommends selling the shares. “When demand goes away, suddenly inventory that you thought was enough becomes an awful lot.”
Earnings Season
Intel is the first big technology business to make a full earnings report for last quarter, kicking off two weeks of announcements by companies such as International Business Machines Corp,Microsoft Corp. and Google Inc. Intel’s processors are the key component in more than 80 percent of the world’s PCs, making its financial performance an indicator of global demand for technology.
Chief Executive Officer Paul Otellini, 58, has said this recession may be the worst of his lifetime. He has sought to maintain growth by introducing a new line of low-cost chips called Atom last year.
The success of that product may be putting Intel’s profitability at risk, according to Betsy Van Hees, an analyst at Caris & Co. in San Francisco. The cheaper processor helped give rise to so-called netbook machines, small notebook computers that sell for less than $500.
Intel may get a bigger chunk of sales from the chips, dragging down its overall gross margin, Van Hees said in a report. She predicted a margin of 51 percent in 2009.
To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net
Last Updated: January 15, 2009 17:14 EST |
