Zeev,
Intel's $7.5b for this year looks like it's carved in stone, but next year looks like a different story.
Weak market may cause Intel cuts
By Reuters
June 20, 2001, 11:45 a.m. PT
LONDON--U.S. semiconductor maker Intel said Wednesday it needed to see a recovery in the chip
market within six months or it would consider cutting capacity and investments next year.
Intel Chief Executive Craig Barrett, traveling through Europe this week, also said delays in building
factories in Israel and Ireland would not affect Intel's $7.5 billion investment plans this year, but could
affect next year's budget.
The U.S. company, by far the world's largest chipmaker, stands out as the only semiconductor maker that
has so far stuck to its investment plans, both in research as well as new factories and equipment.
Alongside its investments in new factories, Intel has also said it would invest $4.2 billion in research and
development.
"We haven't changed guidance (to spend $7.5 billion in capital expenditure). But the slowdown has
modulated demand somewhat. If the slowdown hadn't occurred, we might have spent more," Barrett told
journalists here.
"My expectation is we'll watch what goes on in the next three to six months, and then if we don't see any
improvement at that time, we'll seriously look at both the installed infrastructure we have plus what we
want to spend on investment next year," Barrett added.
In Israel, Intel has put off a decision on a $3.5 billion chip plant, while in March it suspended construction
of a $2.2 billion facility in Ireland, which may come back on stream in 2002, depending on demand.
Despite cascading profit warnings from rival chipmakers in recent days, Barrett saw no reason to revisit
Intel's midterm business update, made nearly two weeks ago.
Intel's update caused a sigh of relief when investors learned the company stood by an earlier second
quarter sales forecast of between $6.2 and $6.8 billion, down from $8.3 billion a year ago.
Intel at a "stable bottom"
Barrett confirmed that the core of Intel's business, which comes from computer-related products such as
microprocessors and motherboards, still looks stable, albeit at lower levels.
"We perceive that we're at a stable bottom of this trough. We're looking for some seasonality in the second
half, which should give some uptick. We're kind of bouncing along at what we perceive as the bottom at
this stage," he said.
But he also said the economic slowdown was hurting the launch of the new Pentium 4 microprocessor,
which was quickly discounted after introduction in an attempt to bolster sales.
"I wouldn't disagree that the economic slowdown has impacted the ramp of Pentium 4, and even sales in
the entire computer industry," Barrett said.
The upbeat market reaction to Intel's midterm update was the result of very low expectations for an
industry that is in its worst-ever slump. It has been quickly overshadowed by a host of profit warnings
from chip and telecommunications-equipment makers, which say European customers have capped
purchases, in line with their U.S. counterparts.
In just seven trading days, the Dow Jones European Technology Stoxx Index has fallen 21 percent from
560 points to 440 points in the wake of warnings from Finnish mobile phone maker Nokia, Canada's
telecommunications-equipment maker Nortel Networks and German chipmaker Infineon Technologies.
Intel shrugged off some of that sell-off, but has nevertheless shed 13 percent, to $26.85, since its update
June 7.
However, Barrett suggested that rival chipmakers that had warned in recent days were finally coming
around to accepting the decline in revenues that Intel had predicted many months ago.
"I'm not sure our forecasts are that different from other people. A year ago our revenue was up in the $8
billion plus range. The guidance we gave two weeks ago was that it was going to be in the $6 billion range.
To me that's a pretty substantial drop," Barrett said.
The fact that competitors were now predicting sales declines similar to Intel's lent some support to the U.S.
group's heavily criticized forecasting unit, which forced the company to come out with a string of
warnings last year.
Barrett came to its defense when he said no one had expected the severity of the decline when it hit late last
year.
Meanwhile, Intel had a reasonably clear outlook on its core computer business, which generates some 80
percent of revenues, thanks to the maturity of that industry, which has gone through many downturns and
improved its inventories management.
"The computer industry is relatively stable from an inventory standpoint and a sales-out standpoint. We
have good insight into the inventories that our big customers have. There doesn't seem to be a stack-up,"
Barrett said.
Intel's much smaller business for communications components, which generates the remaining 20 percent
of sales through products such as opto-electronic chips and flash memory for cell phones, was in dire
shape.
"The communications side of the business is still in a dreadful state of flux. Cisco and Nortel are very
good customers of ours, and when they say they have many, many months of inventory on hand of our
products, we have some exposure." "The good news is that that part of our business is only 20 percent of
business at this time," Barrett said.
Story Copyright © 2001 Reuters Limited. All rights reserved. |
