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Thu, Jul 15, 2004 - Page 12 News List

Intel Q2 earnings almost double

MIXED REPORT Unexpected demand for flash memory chips for mobile phones countered declining sales figures after the firm raised prices at the start of last year


Intel Corp's second-quarter earnings nearly doubled as stronger-than-expected demand for flash memory chips for mobile phones helped offset seasonal weakness in the company's main microprocessor business.

In a mixed financial report on Tuesday, the world's largest chip maker also gave an optimistic outlook for the current quarter but said profit margins would be lower than previously forecast as the company works through an unexpected buildup of inventory.

Still, executives painted a mostly rosy picture.

"For the full year, we're on track to deliver double-digit growth in revenue, with high levels of profit and cash generation," said Andy Bryant, Intel's chief financial officer.

For the three months ended June 26, Intel earned US$1.8 billion, or US$0.27 per share, compared with US$896 million, or US$0.14 per share, in the same period last year. Sales increased 18 percent to US$8.05 billion.

Analysts were expecting Intel to earn 27 cents per share on sales of US$8.1 billion, according to a survey by Thomson First Call. In early June, the company said revenues would be between US$8 billion and US$8.2 billion.

The flash memory rebound is a huge turnaround for Intel, which saw sales decline after it boosted prices at the start of last year. From the first to the second quarter of this year, sales increased more than 40 percent, Bryant said.

"It's a very good recovery for that business," he said.

Microprocessor sales were down 4 percent from the first quarter to the second, which Bryant called "perfectly seasonal."

The company said it expects third-quarter sales of between US$8.6 billion and US$9.2 billion -- slightly higher than the range analysts were expecting for the period that's typically bolstered by back-to-school PC sales.

Still, there were some signs that could point to trouble, including inventory levels that grew by US$427 million during the second quarter. Bryant blamed the increase on greater-than-expected production -- not a weakening of demand.

Intel also predicted narrower margins as sales of lower-margin products like flash memory increase and other prices are cut to reduce inventory.

In recent weeks, several Wall Street analysts downgraded Intel and other semiconductor stocks, saying the industry's upswing that started last year may be near or at its peak. The Philadelphia Semiconductor Index has fallen 11 percent this year.

Bryant disagreed.

"I see no signs of a change in the overall nature of the business," he said.

During the second quarter, Intel launched several microprocessor upgrades and other technology updates. Last month, it unveiled new chip sets that integrate video and audio, claiming them to be "among the most significant PC platform changes in a decade," according to a news release. It also bumped up the top speed of its flagship Pentium 4 processor to 3.6 gigahertz.

Some of the chip sets, however, were recalled after a flaw was discovered. On Tuesday, the company said it took a US$38 million charge for a chip set "manufacturing excursion" during the quarter.

Intel recently introduced work-station processors that can process data in 64-bit chunks.

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