Intel Corp, the biggest chipmaker, said on Tuesday second-quarter profit fell and sales dropped 24 percent as the company cut personal-computer processor prices and demand slumped.
Chief financial officer Andy Bryant forecast that PC sales will pick up in the second half, signaling that chip orders may start to rebound from earlier this year. Intel has said since April that sales might improve this year, and today the company said it's seeing evidence to support that forecast.
Processor unit shipments rose 6 percent in the second quarter from the prior period, Intel said. Falling prices and weaker-than-expected demand in other units crimped revenue. Third-quarter sales will fall to US$6.2 billion to US$6.8 billion as the company further reduces prices to bolster shipments of its Pentium 4 PC processor and as demand for communications chips falters.
PHOTO: BLOOMBERG
"It's been dismal, but there's a good chance most of the bad news is out," said Doug Johanson, principal at Vista Capital Partners, which owns 10,000 Intel shares. "At this point it's got to get better."
Second-quarter net income plunged 94 percent to US$196 million, or US$0.03 a share, from US$3.14 billion, or US$0.45, a year earlier. Excluding certain costs, profit beat analysts' forecasts.
Sales drop
Sales dropped to US$6.33 billion from US$8.3 billion.
Intel shares on Tuesday slipped to about US$29.10, then recovered to US$29.50, after the report. They had gained US$0.77 to US$29.90 in regular US trading before the release. The stock has lost more than half its value in the past 12 months.
The Santa Clara, California-based chipmaker's second-quarter net income includes investment gains and acquisition-related costs.
Excluding the costs, profit would have been US$854 million, or US$0.12 a share. On that basis, profit was expected to be US$0.10, the average estimate in a First Call/Thomson Financial analyst survey. Those figures don't meet generally accepted accounting principles.
Profit in the recent quarter includes a US$3 million gain from the sale of investments in Intel's venture-capital arm, compared with an investment gain of US$2.1 billion a year earlier.
Analysts polled by First Call expect profit of US$0.12 a share on sales of US$6.51 billion for the current period. In the third quarter of last year, the company had profit of US$0.41 a share on revenue of US$8.73 billion.
Predicted rebound
The company's rising shipments of PC processors supports its prediction for a rebound in the PC market in the second half, Bryant said. Average selling prices for microprocessors fell from the first quarter and will continue to fall in the September period.
Sales of flash-memory chips, which store data when devices such as cellphones are switched off, were weaker than expected, Bryant said. Flash demand will rebound this year, and it's still too soon to say when sales of communications chips will improve, he said.
"The microprocessor business was a little better than anticipated, while the communications businesses were softer than we had expected," Bryant said.
Intel has cut the price of the Pentium 4 by as much as 69 percent since the chip's November introduction, trying to boost PC demand and fend off rival Advanced Micro Devices Inc.
That has trimmed gross margin, or the percentage of sales left after subtracting manufacturing costs. Gross margin will be 47 percent in the third quarter, down from 48 percent in the June period, the company said.
With Advanced Micro making market-share inroads and profit falling, investors said chief executive Craig Barrett faces more pressure now than when he took over the top job in 1998.
"Any company should be able to keep market share or increase it -- either that or they should preserve their margins," said Louis Kokernak, senior equity strategist at Martin Capital Advisors, which owns 36,000 Intel shares. "Intel's margins are down, and they're losing market share."
Some investors are concerned that Intel's forecast could be too optimistic. European sales may dry up in the third quarter and demand in Asia appears weak, and back-to-school PC-chip sales have barely started, so it may be too early to see much evidence, they said.
If Intel had to press customers to buy during the second quarter, shareholders said the company could win fewer sales this period unless demand rises more than expected.
"They made their numbers, but did they stuff the channels or make some last-minute discounts to get people into this quarter?" said Jerry Dodson, president of Parnassus Investments, which owns Intel shares. "That makes me wonder if they're going to be able to be flat."
The company said it will give investors an update on business in the third quarter on Sept. 6.
Intel is speeding up plans to broaden use of the Pentium 4.
The company in two weeks will start selling a new chipset, dubbed the 845, that uses a different kind of memory and helps the processor talk to the rest of the PC.
The chipmaker earlier tried to rally support for memory chips based on a design from Rambus Inc. Those chips proved too expensive for some systems. The cheaper 845 chipset uses standard memory and will come out six weeks ahead of schedule, executive vice president Paul Otellini said.
That means consumers will see the Pentium 4 in much cheaper systems later this year, as low as US$799, he predicted. Intel will introduce a 2GHz Pentium 4 this quarter, he said. The fastest now is 1.8GHz.
The company reduced its plans for research and development spending for the year to US$4 billion from US$4.2 billion. Intel still plans to spend US$7.5 billion on capital improvements, including new plants.
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