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Thu, Jul 17, 2003 - Page 12 News List

Intel's sales defeat odds

NEW PROCESSORS The computer-chip giant has defeated a combination of slumping computer demand and inefficient manufacturing processes

BLOOMBERG

Intel Corp, the world's biggest maker of computer chips, said second-quarter profit doubled as computer and server processor sales beat its expectations. The company said sales this period will rise at least 6 percent.

Net income rose to US$896 million, or US$0.14 a share, from US$446 million, or US$0.07, in the same quarter last year, chief financial officer Andy Bryant said. Revenue rose 7.9 percent to US$6.82 billion as customers in the Asia-Pacific region spent a record amount.

Sales from server-computer chips reached a new high, boosting processor sales 12 percent.

Intel, which has struggled with a slump in computer demand for three years, is benefiting from investments in new processors for servers and mobile computers, which fetch higher prices than other types of chips.

Improving demand and more efficient factories are lowering manufacturing costs, which ought to lift profit in the second half of this year, investors said.

"Things are starting to fire on all cylinders," said Jim Grossman, a semiconductor analyst at Thrivent Financial, which oversees US$57 billion and owns Intel shares. "People will look at the valuation and say, `For the first time in a long time I'm feeling a little better about their end market.'"

Intel expects third-quarter sales of US$6.9 billion to US$7.5 billion, Bryant said on a conference call with investors.

The consensus estimate for third-quarter sales was US$7.11 billion, according to a Thomson Financial poll of analysts.

Net income in the year-earlier second quarter included almost US$220 million in one-time costs and write-offs, and sales were US$6.32 billion.

Bryant, who said second-quarter results benefited from "a little bit of everything," said it was too early to predict whether businesses were ready to replace their fleets of aging PCs and servers or that consumers would begin buying PCs at the clip they did in the late 1990s.

"I wouldn't characterize this as a recovery," he said in an interview.

"There's nobody out there saying `Let's increase our [information technology] spending,'" he said.

Intel remains "disappointed" in demand for its flash memory, used to store settings and data in digital cameras, cell phones and other electronic devices, Bryant said.

The company lost share after the first of the year when it raised prices by as much as 40 percent.

Bryant said he couldn't tell whether Intel regained the lost share and suspects competitors also had disappointing flash sales.

Intel boosted the amount it plans to spend on research and development this year to US$4.2 billion, from US$4 billion, as a result of being ahead of schedule in its transition to smaller, 90-nanometer wires.

That will allow Intel to devote more of its engineering resources to even-smaller 65-nanometer features, a move that will decrease its cost of goods sold.

Intel last year outspent Advanced Micro Devices, its top rival in computer processors, by more than sixfold as it bought new factories and equipment.

The capital investment is putting further distance between Intel and Advanced Micro as the latter struggles with seven-straight quarters of losses and is forecast to report its eighth tomorrow, investors said.

"As companies were throttling back aggressively in their cap-ex spending, Intel was very forward looking, and they've made things very difficult for their primary competitor AMD by doing so," said Rob Siewert, a chip analyst at Victory Capital Management, which manages US$60 billion and holds Intel shares.

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