Intel lowers costs as sales rise

Intel Corp, the world's biggest semiconductor maker, said a new manufacturing technique will lower production expenses more than the company forecast as demand for computers increases.

Intel has opened three plants using bigger, 300mm silicon wafers, allowing the company to make more chips on each slice and cut costs. The move will cut per-chip costs 25 percent by the end of this year and another 25 percent by the fourth quarter of 2005, President Paul Otellini said at a meeting with analysts and investors in New York.

Lowering expenses gives Intel room to cut prices without sacrificing as much profit. Intel, which earlier this year said the cost-savings goal would be missed, today said production has increased as a three-year slump in corporate and consumer demand for computers abates.

"Hopefully we'll start to see some enterprise growth in 2004," chief executive officer Craig Barrett said, referring to the US market. "We've seen some sprinkling signs of that, but I don't expect a major upgrade cycle. I do think we'll see increased investment in the U.S. going forward."

Shares of Santa Clara, California-based Intel fell US$0.69 to US$31.83 at 4pm New York time in NASDAQ Stock Market composite trading. They have more than doubled this year as investors bet on a recovery in computer spending.

Intel will begin selling the successor to the Pentium 4 chip, codenamed Prescott, this quarter, Otellini said. The Prescott design will represent 60 percent of the Pentium line by the end of the second quarter, and be used in 40 percent of Intel's lower-cost Celeron chip line, he said.

Prescott is based on new manufacturing methods that build thinner wires that measure 90 nanometers wide in chips, less than 130 nanometers today. More than 1,000 of the new wires would fit in a space as wide as a single human hair.

Intel plans to ship its first server-computer chip with the thinner wires next year, Otellini said. About 70 percent of Intel processors will have 90-nanometer wires by the end of next year.

Intel-based machines have taken server-computer sales from Sun Microsystems Inc in the past three years, Otellini said.

Servers run Web sites and networks.

Sun is best known for building servers with its own software and chips, while many rivals use Intel chips to lower costs. Sun only recently started selling some systems with other chips.

"They are the Apple of servers," Otellini said. Apple Computer Inc, a personal-computer maker that doesn't use Intel chips or Microsoft Corp software, had about 2.3 percent of the worldwide PC market in the second quarter.

Intel plans to roll out new flash-memory products to help regain sales in that market. The company has been struggling in flash-memory chip sales after raising prices by as much as 40 percent in January. Some customers of the chips, which are used in mobile phones and digital cameras, switched to rivals.

"The way out of this hole is new products," Otellini said.