Intel Execs Bullish Despite Tough Times
By Duncan Martell
SAN FRANCISCO (Reuters) - Intel Corp. (Nasdaq:INTC - news) executives sounded a bullish note on Tuesday for long-term growth at the world's largest chipmaker, saying that the billions it's spending this year will yield profits and market share gains once the high-tech recession abates and growth resumes.
``We absolutely understand that technology never slows down, even during a recession,'' Intel's Chief Executive Craig Barrett said in a presentation for analysts broadcast over the Internet. ``Our strategy here is new products, new technology, building blocks for the Internet.''
In spite of a dismal year for personal computer sales, which are forecast to be flat or slightly down -- the first time ever in the 20-year history of the industry -- and the worst-ever slump in the semiconductor market, Intel has stuck to its aggressive spending plans. Barrett said the 33-year-old chipmaker is still on track to spend $7.5 billion this year on capital expenditures and $3.9 billion on research and development.
The spending comes as Intel's sales and profits have dropped precipitously this year. In the third quarter, Intel's profits tumbled 77 percent to $655 million from $2.89 billion as sales declined 25 percent to $6.55 billion.
Shares of Intel have plunged 69 percent from a record high of $74.88 reached on Aug. 31, 2000, before the Internet bubble burst, prompting the closure of hundreds of dot-com companies and economies began to slow. Intel's stock declined 64 cents to $23.54 on Tuesday on the Nasdaq.
RUTHLESSLY COMPETITIVE
But the Santa Clara, California-based company will continue to spend and be ruthlessly competitive as it seeks to gain market share against rivals such as Advanced Micro Devices Inc. (NYSE:AMD - news), communications chipmaker BroadcomCorp. (Nasdaq:BRCM - news) and networking vendor 3ComCorp. (Nasdaq:COMS - news), the second largest provider of Ethernet products after Intel.
``We are absolutely deadly focused on growing our market segment share,'' said Paul Otellini, who runs Intel's Architecture Group, which include its PC-related businesses including microprocessors and accounted for 80 percent of Intel's $19.6 billion in sales for the first nine months of 2001.
In addition to the grim year for PC sales, Intel also has faced renewed competition from Advanced Micro Devices, its principal competitor in the market for microprocessors, the primary computing engine in personal computers.
Although Intel lost market share to AMD steadily throughout the year, in the third quarter it stemmed that decline and gained back 0.8 points to finish with 77.5 percent of the market, according to market researcher Mercury Research. AMD's share of the market slipped to 21.5 percent from 22.2 percent at the end of the second quarter.
NEW PRODUCTS, NEW TECHNOLOGIES
Although the Webcast, which replaced Intel's Fall analyst meeting, did not give any financial guidance, executives did lay out Intel's broad product and technology goals for 2002 and, in some cases, beyond that.
By roughly the third quarter of 2002, Intel will have completed its transition to the Pentium 4 chip built using so-called 0.13 micron technology, in which certain dimensions of the chips are only 0.13 microns across, Otellini said. A human hair, by comparison, is about 100 microns wide.
The move to 0.13 micron technology from the current 0.18 micron process cuts costs considerably -- on the order of 30 percent and increases the number of chips that can be produced from each silicon wafer.
In addition, Otellini said Intel plans to ship a Pentium 4 chip running at 3 gigahertz, or 3 billion cycles per second, next year and expects to gain market share in the market for chipsets, with a version of its 845 chipset that has integrated graphics technology in it due out in the second quarter.
By the fourth quarter of 2003, Otellini is forecasting that the average cost of building its microprocessors will fall 25 percent from the fourth quarter of 2001, driven principally by moving to 0.13 micron production and larger silicon wafers.
By the end of this year, four of Intel's 13 chip plants located across the globe will be using 0.13 micron technology, Barrett said, and it will be used in six plants by the middle of 2002. Production using larger, dinner-plate-sized wafers comes online in earnest next year, Barrett said, beginning to replace the salad-plate-sized wafers now used.
WIRELESS, NETWORKING, AREAS OF FUTURE GROWTH
That, too, helps cuts costs. Intel can get roughly 2.5 times more chips out of the larger wafer than from the smaller ones.
In the market for high-powered servers that are the center of corporate networks and help to run Web sites, Intel plans several processor offerings for next year, Otellini said. Xeon processors code-named Prestonia, Foster and Gallatin are due out in the first, second and third quarters, respectively, in 2001.
Intel executives Ron Smith, who heads Intel's wireless communications and computing group, and Sean Maloney, head of Intel's communications group, its networking business, also maintained that their units were poised for growth.
``Wireless presents a strong growth area for Intel, especially as we move to data'' in mobile phones,'' Smith said, whose group accounted for less than 1 percent of Intel's sales in the first nine months of 2001.
Another area where Intel has been aggressive is Maloney's group. Intel has acquired approximately a dozen companies so far this year, with the bulk of them focused on beefing up its communications business.
Maloney said that Intel's network processor is coming into production very well, adding that the company will be making them ``in the millions'' in 2002. Intel first discussed designing and building a networking chip two years ago.
Revenue at Intel's communications group declined 22 percent in the first nine months of 2001 to $1.99 billion from $2.56 billion. Sales at its wireless communications and computing group declined 7 percent in the same time period. Both of those groups had operating losses. |
