Intel Corp Chief Executive Craig Barrett stood onstage at an event in October, shaking a green tambourine, touting advances in chips and software to link more electronic gizmos to the Internet.
The song: Stayin' Alive.
Though the audience of software programmers and executives laughed and cheered at the time, the Bee Gees classic now sounds more like the theme song to Barrett's efforts to restore Intel's glory days.
PHOTO: BLOOMBERG
Since late last year, demand for semiconductors and networking gear has fallen harder and languished longer than anyone predicted. Sales industrywide will show their biggest decline ever this year, and analysts predict a 24 percent drop in Intel's second-quarter sales when the world's biggest chipmaker reports results.
"He's definitely in a tough position," said Graham Tanaka, president of Tanaka Capital Management, which owns 95,000 Intel shares. "Part of it is bad luck; the dot-com bubble burst."
On top of that, slowing economic growth worldwide, stockpiles of chips at customers and increasing pressure from competitors have made Barrett's job even harder. Intel will post second-quarter profit of US$0.10 a share on sales of US$6.29 billion, the average analyst estimates in a First Call/Thomson Financial survey. A year ago, the company earned a split-adjusted US$0.50 on revenue of US$8.3 billion.
The stock has fallen 62 percent since its August record and has declined 3.1 percent so far this year. That compares with a 8.9 percent drop for the Standard & Poor's 500 Index this year, and a 45 percent rise for rival Advanced Micro Devices Inc.
First Call forecasts include investment gains and exclude amortization of goodwill. On this basis, the numbers aren't in accordance with generally accepted accounting principles.
Advanced Micro, which gained 5 percentage points of market share from Intel since December, on Thursday said second-quarter earnings fell 92 percent as sales dropped 16 percent.
Intel, based in Santa Clara, California, has helped drive the personal-computer industry out of the doldrums before by touting speedier chips that let users perform more complicated tasks.
That strategy doesn't seem to be working this time. Pentium 4 shipments have lagged analyst projections. PCs being sold today are mostly cheaper machines, dragging down average selling prices and depressing profit.
Intel in April said sales in the June quarter would be US$6.2 billion to US$6.8 billion, and executives indicated that PC-chip demand might be picking up. Last month, officials chopped the top off that forecast, saying sales would be "slightly below the midpoint" of that range.
Barrett is eliminating 5,000 jobs and slicing several hundred million dollars in costs this year by reducing spending and delaying raises. He's put off construction on office towers and two manufacturing plants.
Now, he's got the unenviable task of having to call the state of the PC industry before any of his customers. Intel, one of the first PC-related companies to report, sets the tone for earnings season. In the three quarters before this one, Barrett overestimated prospects and had to reduce targets mid-quarter.
"He's too optimistic," said Jerry Dodson, president of Parnassus Investments. "They're misreading a lot of end demand, or trying to put a more positive spin on it than is warranted."
Analysts say European sales may dry up in the third quarter and demand in Asia appears weak. Back-to-school PC-chip sales have barely started, and the crucial holiday shopping season is months off -- so actual evidence isn't there yet. Intel declined to comment.
Barrett -- the 61-year-old former college professor who followed Silicon Valley celebrities Robert Noyce, Gordon Moore and Andy Grove as Intel's CEO in 1998 -- is retraining the company to be more than just a one-chip pony.
Faced with spending changes that made Intel's old PC-centered product line outmoded, he added processors for networking gear, started lines of consumer devices like digital cameras and got Intel into the business of managing other companies' Web sites.
Some of Barrett's bets haven't paid off. Intel will stop selling some networking products, and analysts are disappointed with the Web-hosting unit.
Given Intel's dependence on Pentium 4 and the PC market, investors said they're willing to give Barrett time to watch new projects develop.
"They have to do it," said Louis Kokernak, senior equity strategist at Martin Capital Advisors, which owns 36,000 Intel shares. "Chips for PCs do not command the kind of margins they have in the past."
Barrett got an 8 percent raise in cash compensation last year, making US$3.36 million in salary and bonus, and an options package worth US$19.5 million if the shares climb 10 percent a year over the next decade.
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