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Intel foresees more difficult times over the next 12 months

AP , SAN JOSE, CALIFORNIA

Intel Corp appears to be playing it safe with an ugly first-quarter forecast.

The chip maker reported on Thursday that profit plunged 90 percent and sales slipped 23 percent during the last three months of the year, matching analysts’ subdued estimates.

Wall Street was braced for the bad news: Intel had lowered its fourth-quarter guidance twice, including once just last week, warning that weaker-than-expected PC demand was hammering down demand for its microprocessors.

So what about this year? Intel said it doesn’t know when demand will pick back up, so the Santa Clara-based company set the bar low and offered first-quarter guidance at the low end of what analysts were expecting.

Intel said sales this year will likely be around US$7 billion, which translates to a decline of more than 25 percent from the first quarter of last year. Gross profit margin should also sink sharply, falling from more than 50 percent of sales to the low-40 percent range, it said.

Gross profit is a key measure of how well a company is controlling its costs, but falling demand, heavy investment in factory upgrades and big costs for running factories at less than full throttle will all take their toll on Intel’s bottom line.

Intel said the financial crisis has made it so difficult to predict revenue that the company wouldn’t offer a precise estimate.

Analysts surveyed by Thomson Reuters were expecting US$7.3 billion in sales, on average, but estimates ranged from US$6.6 billion to as high as US$9.3 billion.

The profit forecast was below many estimates, but was good enough to send Intel’s shares up 3.8 percent in after-hours trading.

Intel’s chief financial officer Stacy Smith said in an interview that computer makers’ inventory levels fell in the fourth quarter and continued falling into the first quarter, which means they’re not buying as many new chips. He said Intel’s product lineup positions the company well to take advantage when demand starts rising again, but Smith cautioned that no one knows yet when that might be.

“It’s very difficult to precisely call when we’ll hit the bottom,” he said.

In the fourth quarter, Intel’s net income was US$234 million, or US$0.04 per share, compared with US$2.3 billion, or US$0.38 per share, in the year-ago period.

Profits were squeezed by a freeze in IT spending and a shift toward low-margin processors for a class of little laptops known as “netbooks.” A big reason for the severity of the fourth-quarter drop, though, was a US$1 billion writedown of the value of Intel’s investment in Internet provider Clearwire Corp.

Clearwire specializes in a new type of wireless broadband technology called WiMax that Intel is building into its chips, and has stumbled on fears the credit crunch will derail its ambitious network buildout plans.

Intel’s sales were US$8.2 billion, a 23 percent shortfall from last year.

For all of last year, Intel earned US$5.3 billion, 24 percent lower than a year ago, on sales of US$37.6 billion, a 2 percent decline.

Smaller rival Advanced Micro Devices warned that its fourth-quarter sales would likely come in 33 percent lower than last year.

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