Intel Profit for 3rd Quarter
Misses Analysts' Estimates
By DEAN TAKAHASHI
Staff Reporter of THE WALL STREET JOURNAL
October 13, 1999
SANTA CLARA, Calif. -- Intel Corp., feeling the effects of falling personal-computer prices and product delays, missed earnings and revenue expectations for its fiscal third quarter but said it expects results to improve in the current quarter.
Intel posted net income of $1.46 billion, or 42 cents a diluted share, down 6% from $1.56 billion, or 44 cents a share, a year earlier. Revenue was $7.33 billion, up 9% from $6.73 billion. Without charges related to acquisitions, Intel had profit of $1.9 billion, or 55 cents a diluted share.
Company Profile: Intel
The company was expected to report profit, absent charges, of 57 cents a share, according to First Call/Thomson Financial. Many analysts had expected Intel to hit a "whisper number" of 60 cents a share. Analysts also expected revenue of about $7.5 billion. Intel is a bellwether of the PC industry, so its results are closely watched on Wall Street.
Results for the quarter ended Sept. 25 were issued after the stock market closed. Intel rose 18.75 cents to $76.6875 in trading Tuesday on the Nasdaq Stock Market. However, its shares fell to $70.125 in after-hours trading, according to Instinet. Some analysts expect the results to put a damper on technology stocks Wednesday.
Andy Bryant, Intel's chief financial officer, said microprocessor sales were strong but average selling prices took a dip as a result of gains in market share on the low end of the market. But Intel's big misstep was it couldn't make and sell as many high-priced chips as it wanted because of several manufacturing glitches.
The company said sales were hurt by a flaw in $1,000-plus Xeon chips and a delay in shifting to 0.18-micron manufacturing, a process that shrinks the size of circuits and thereby improves costs and chip speeds. The delay in 0.18-micron manufacturing forced Intel to delay the launch of a chip code-named "Coppermine," a high-speed version of the Pentium III chip, from September to late October.
"Intel can't send flowers to its customers when it has product delays, so it sends them price cuts instead," said Charles Glavin, an analyst at Credit Suisse First Boston in San Francisco who expected Intel to report net income of 57 cents a share. "That's what happened this quarter."
Fourth-Quarter Outlook
Mr. Bryant said fourth-quarter revenue will be above the third-quarter level and gross profit margins will be up "a couple of points." Intel's second half, and especially its fourth quarter, is typically its strongest part of the year.
"Overall demand for the fourth quarter looks good," said Mr. Bryant. He added, "To date, no customers have told us they're being impacted by the Taiwan quake and so far we don't see ourselves being limited by it."
"Revenues came in as expected, but the bottom line is a disappointment," said Ashok Kumar, an analyst at US Bancorp Piper Jaffray in Minneapolis, who was expecting Intel to report net income of 60 cents a share. "They took more of the low-end market, and their average prices were down as a result," he said.
Intel's gross profit margin fell to 58.7% in the third quarter from 58.9% in the second quarter due to falling prices. Mr. Bryant predicted gross margin will rise in the fourth quarter because of what Intel expects to be strong demand for PCs.
Acquisition-Related Charges
The earnings were affected by acquisition-related charges of $333 million for in-process research and $121 million in goodwill amortization.
In the face of weakness among competitors, Intel has steadily tightened its grip on its share of the microprocessor market in the past year. Intel captured 83% of the PC-microprocessor market in the third quarter, compared with 12.7% for No. 2-ranked Advanced Micro Devices Inc., according to Mercury Research in Scottsdale, Ariz. A year earlier, Intel had 79% of the market, while AMD had 12.4%.
AMD last week reported a quarterly loss of $105.6 million, thanks to a bloody price war with Intel in the low end of the market. But AMD is planning an assault on high-end chips. It is beginning to ship its 700-megahertz Athlon chips, which are faster than anything Intel sells.
Intel's strength remains its near monopoly in business PCs and the high-end PCs known as servers, where chips typically command prices above $1,000 each. The high profit margins on these chips help offset the growing popularity of cheap PCs in the consumer market. In coming quarters, Intel is expected to face more competition from AMD in the high end.
Microprocessor Shipments
Intel doesn't disclose specifics on units and prices. But Mr. Kumar estimated during the third quarter, Intel shipped 30 million PC microprocessors, compared with 25.2 million in the prior quarter.
Average selling prices for PC microprocessors were about $185 a chip, down from $195 in the prior quarter. David Wu, an analyst at ABN Amro in San Francisco, said he expects prices to recover in the fourth quarter as the high-priced Coppermine chips begin selling in two weeks.
But Mr. Glavin was more cautious, noting another delay in high-end chip sets, which use a faster kind of memory chip technology from Rambus Inc., also could hurt sales of high-end products during the fourth quarter.
"There is a lot of uncertainty in the fourth quarter, and this time Intel really doesn't know what's going to happen," Mr. Glavin said. "From the year-2000 bug to product delays and shortages, anything could hurt the quarter." |
