Wed, Jul 16, 2008 page11

• Intel sales slowdown may signal end of growth status

  • BLOOMBERG
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  Intel Corp’s quarterly sales gain may slow to its lowest level in a year, signaling that the world’s largest chipmaker is losing its status as a growth company.

  Intel probably will report sales increased 7 percent for the second quarter, a Bloomberg survey of 28 analysts showed, down from an average of 12 percent for the previous three quarters. Sales will rise an estimated 4 percent for the year, half the rate last year, the survey showed.

  Prices for personal-computer processors, the source of most of California-based Intel’s sales, dropped 20 percent between 2004 and last year, Mercury Research said. That curbed sales growth, which had averaged about 25 percent a year from 1990 to 2000 as PCs became household items.

  “Going back to double-digit growth is going to be difficult,” said Tristan Gerra, an analyst at Robert W. Baird & Co in Milwaukee, Wisconsin.

  He has a neutral rating on the stock, which he doesn’t own.

  Chief executive officer Paul Otellini boosted profitability 38 percent last year after taking market share from Advanced Micro Devices Inc and saving more than US$1 billion in annual costs by cutting jobs and selling off businesses. The stock has fallen 23 percent this year as investors wait for him to reignite growth by breaking into new businesses.

  The drop compares with a 16 percent decline by the 18-member Philadelphia Semiconductor Index and a 17 percent loss by the Dow Jones Industrial Average.

  Analysts were anticipating a profit of US$0.26 a share on sales of US$9.33 billion when Intel announced results after the market closed yesterday, the survey found.

  Tom Beermann, an Intel spokesman, declined to comment.

  Intel plans to create a new market for inexpensive PCs with a processor called Atom. The chip began appearing last month in laptops that sell for as little as US$250.

  Reaching lower-income buyers may be Otellini’s best chance to fuel sales, said Bill Gorman, an analyst at PNC Institutional Investments in Pittsburgh, Pennsylvania.

  “The PC market isn’t stale yet,” said Gorman, whose firm owns 10.9 million Intel shares, Bloomberg data shows. “That market still has some legs to it, and they could maybe grow a little at the edges.”

  Global PC shipments will rise 15 percent to 310 million units this year, research firm IDC says. The Massachusetts-based company expects percentage growth to remain above 10 percent until 2010.

  Intel ended the first quarter with 78.5 percent of PC processor sales, Arizona-based Mercury Research says. AMD accounted for most of the rest of the market.

  Increases in unit sales have been offset by a 6 percent annual decline in the average selling price of chips, Otellini told investors at a Sanford C. Bernstein conference in May, suggesting that Intel needs new markets to revive revenue.

  The Atom chip may be the breakthrough Intel needs to cultivate a new market, said Highmark Capital Management chief investment officer David Goerz, who manages US$22 billion, including Intel shares. It lets Intel tap booming sales of inexpensive portable devices overseas, he said.
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