TTOST & thread,
Here is the WSJ story that the world will read in the am.
Not a bad story for Intel longs.
Emphasis is mine.
Barry
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interactive.wsj.com
July 15, 1998
Intel's Profit Fell 29% in Quarter,
Missing Street's Lowered Estimates
By DEAN TAKAHASHI
Staff Reporter of THE WALL STREET JOURNAL
Intel Corp. missed earnings forecasts for the second quarter, but made
comments about the current quarter that suggest that the chip giant's
market-shaking slide may have bottomed out.
The Santa Clara, Calif., chip maker reported net income for the second
quarter ended June 28 fell 29% to $1.17 billion, or 66 cents a diluted
share, compared with $1.65 billion, or 92 cents a share, a year earlier.
Revenue was $5.92 billion, slightly below the $5.96 billion a year earlier.
Intel's reported earnings were less than
analysts' consensus of 68 cents, as tallied by
First Call. But Andy Bryant, Intel's chief
financial officer, said on a conference call that
Intel's income was lowered by three to four cents a share due to inventory
write-downs that reflected the company's success in cutting costs more
quickly than expected. Adjusting for this one-time phenomenon, some
analysts were figuring Intel's operating earnings per share at about 70
cents, better than Wall Street's consensus.
Moreover, Intel said it expects third-quarter revenue to be flat or up
slightly, and second-half revenue greater than the first half, as PC demand
recovers. "This was a good quarter in the current environment," said
Ashok Kumar, an analyst at Piper Jaffray Inc. in Minneapolis. Added
Robert Chaplinsky, an analyst at Hambrecht & Quist in San Francisco:
"This should be viewed as positive news for the future because they are
cutting expenses faster than expected."
Intel released its results after stock markets closed Tuesday. Its shares fell
$1.6875 to $80.6875 in trading on the Nasdaq Stock Market, and initially
declined further in after-hours trading but rebounded to $81 after more
details about the company's results circulated.
Ammunition for Bulls, Bears
The company's results are a proxy for the strength of most high-tech
hardware. Its health has been a concern since a decline in earnings and
sales in the first quarter pointed to slowing demand for PCs and a buildup
in chip inventory at some major computer makers. The latest results
contained ammunition for Intel bulls and bears.
Intel's gross profit margins, for example, sank to 49% from 54% in the first
period. But that was largely because of the reduced production costs on its
highest-volume microprocessor chips, which led to the inventory
write-downs. Intel has been racing to cut its costs to adjust to the advent
of sub-$1,000 PCs, whose popularity has led to rapid price-cutting and
increased competition from rival chips.
For the third quarter, Mr. Bryant said he expects revenue to be flat
sequentially at $5.9 billion, or slightly up, and that gross profit margins will
be a couple of points up from the second-quarter's 49% mark. For the
year, he predicted gross margins will average 52%. Though noting that the
company generally expects the second half to be stronger, it isn't
suggesting a dramatic rebound.
"We can't find a story here," Mr. Bryant said. "We don't see any cosmic
changes in our business."
Statements May Calm Jitters
Still, Intel's statements are likely to calm jitters that PC demand could
further decelerate. Analysts believe the chip maker's sales will benefit from
PC sales stimulated by the launch of Microsoft Corp.'s Windows 98
operating system, as well as seasonal back-to-school demand. Mr. Bryant
added that he believes the inventory correction at large computer makers
is now over and customers are back to ordering machines to meet
customer demand.
After the dour first quarter, many analysts lowered their expectations for
the year. In the few weeks before Tuesday's announcements, some of
them lowered estimates once more on fears that Intel would issue an
earnings forecast that the second quarter was even worse than the
company had expected.
But Intel never issued such a warning. It now appears that the
back-to-school season for PC purchases could modestly tug it out of the
doldrums, returning the company to sequential quarterly revenue growth
for the third and fourth quarters.
Intel noted that unit sales of microprocessors were "slightly" below the
estimated 21.6 million chips sold in the first quarter. Since revenues were
also down slightly, the numbers suggest that Intel's average selling prices
were relatively stable, after a long slide that has put pressure on the
company's profit margins. Analysts believe sales of portable computer
chips, mail-order computers, commercial machines and high-end
workstations offset falling prices in the low-end U.S. retail market.
Intel said it got a unit sales bump in the quarter from price cuts in April and
June as well as sales of high-end Pentium II microprocessors launched in
April. The U.S. retail market also benefited in late June from initial sales of
Windows 98. Chip inventories that built up early in the year at Compaq
Computer Corp. and other large computer makers appeared to recede,
resulting in new orders in the second half of the quarter for Intel.
To counter increased competition, Intel recently began designing chips for
each segment of the market. A new low-end chip called the Celeron,
though it has received mixed reviews, is selling rapidly and accounted for
5% of unit shipments in the quarter. Intel also said it expects the release of
a more-powerful chip for the sub-$1,000 computer market, the
Mendocino, early in the second half of the year. In nonmicroprocessor
businesses, Intel said unit sales of support chips for computers and
embedded chips for appliances were down, while flash memory unit sales
were up compared with the first quarter.
International Sales
Geographically, the company said that sales in Asia Pacific remained flat.
Paul Otellini, executive vice president at Intel, said Japan was up slightly
but not showing signs of a "full-scale recovery," while the company
reported record sales in China. Mr. Otellini declined to forecast PC
growth, but he said he wouldn't argue with market researchers forecasting
unit growth in the midteens, which means THE COMPANY NEEDS A SPECTACULAR FOURTH QUARTER TO MEET THAT EXPECTATION.
Charles Boucher, an analyst at Donaldson, Lufkin & Jenrette in San
Francisco, said he doesn't foresee much technology coming that could
deliver a boost in the market, raising questions as to whether Intel has any
more than a seasonal uptick as the basis for its belief that PC demand will
pick up in the second half.
"The key is whether people think this is the bottom quarter," added C.B.
Lee, an analyst at Sutro & Co. in San Francisco. "Their words on the
conference call were mildly encouraging."
Intel is in the midst of cutting 3,000 jobs via attrition and layoffs, though it
said it now plans to do so by the end of the year rather than by the third
quarter. Intel has also informed PC makers of deep price cuts in coming
quarters, and it idled two older plants for eight days.
Mr. Bryant added that Intel was cutting capital spending from $5 billion to
as low as $4.5 billion because of a positive development, its progress in
shifting to a newer manufacturing process more quickly than expected. He
said the company will shift in the first half of 1999 to manufacturing
equipment that can make lines of circuitry that are 0.18 micron in width.
As a result, the company doesn't need to invest as much this year in the
older 0.25 micron process, allowing it to cut capital spending, he said.
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