Intel Raises Possibility of Loss in First Quarter (Update2)
By Ian King
Jan. 20 (Bloomberg) -- Intel Corp., the world’s largest chipmaker, raised the possibility of reporting a loss this quarter, ending its more than 21-year run of profitability.
“We are not going to wake up in six months with everything rosy again,” Chief Executive Officer Paul Otellini told employees last week in an internal memo obtained by Bloomberg News. After 87 quarters of profit, the first quarter is “too close to call,” the memo said.
Slumping demand for personal computers has forced Intel to run its factories below capacity, making them less profitable. Last week, the company reported a 90 percent drop in fourth- quarter net income. The possibility that the chip industry’s richest company may not stay profitable underscores a plunge in chips orders for everything from computers to mobile phones.
“It’s worse than bad because it’s unknowable how long it’s going to be bad,” said Cody Acree, an analyst at Stifel Nicolaus & Co. in Dallas. Acree recommends buying the shares, which he doesn’t own. “I don’t think there’s any precedent for this.”
Intel, based in Santa Clara, California, fell 88 cents to $12.86 today in Nasdaq Stock Market trading. The shares declined 45 percent last year.
Intel doesn’t comment on confidential employee communications, said Chuck Mulloy, a spokesman for the company.
Analysts have estimated a first-quarter profit of $228.9 million, according to a Bloomberg survey.
No Forecast
Intel said last week that fourth-quarter net income dropped to $234 million, or 4 cents a share, from $2.27 billion, or 38 cents, a year earlier. The results included a writedown of about $1 billion in its investment in Clearwire Corp. That company, which is developing a high-speed Internet service, lost 64 percent of its value last year.
Intel is assuming revenue of about $7 billion this quarter for planning purposes. That’s not an official forecast and the company said it doesn’t have enough insight to make one. That amount would be a decline of 28 percent from a year ago.
Intel’s failure to give an official forecast was the first time that had happened in Otellini’s 34-year career at the company, according to the memo.
There will be no budget for merit pay or promotions, and Intel will only refill vacant jobs on a selective basis, Otellini said in the memo. He said he has received e-mails from employees saying they would rather take pay cuts than lose a job or see co- workers terminated.
“We will be focusing on every nickel,” Otellini said in the memo. “Every dollar counts.”
While the company will maintain its investments in future technologies, it plans to cut discretionary spending and slow down factory production. That will force the closure of some sites and cause manufacturing workers to relocate. |
