Fri, Sep 07, 2001 page21

• Intel may reduce sales target for 3Q

  COMPUTER CHIPS The US-based company has lowered the price of its Pentium4 by up to 84 percent since the chip's debut last November. That's likely to hurt profits

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  Intel Corp, the biggest computer-chip maker, is likely to reduce its third-quarter sales forecast because of falling prices, investors said.

  The company will hold a conference call after US markets close to update analysts and investors on its business. In July, Intel said sales would be US$6.2 billion to US$6.8 billion. Analysts expect revenue of US$6.41 billion and profit of US$0.10 a share, the average estimates in a Thomson Financial/First Call survey.

  "It will be at the low end of guidance or a small downward revision," said Louis Kokernak, senior equity strategist at Martin Capital Advisors, which owns 35,000 Intel shares. "It's a solid bet to assume it's going to be negative."

  Intel dropped the price of its Pentium4 personal-computer processor by as much as 54 percent last month and has slashed the price by as much as 84 percent since the chip's November debut to jumpstart demand. Yesterday, an industry group said worldwide chip sales sank 37 percent in July, signaling that consumers and businesses are still putting off PC purchases even as prices fall.

  Intel shares rose US$0.62 to US$27.47. The stock has lost 60 percent of its value in the past year, compared with a 25 percent decline in the Standard & Poor's 500 Index and a 52 percent drop in the Philadelphia Semiconductor Index.

  In last year's third quarter, Intel had net income of US$0.36 a share on sales of US$8.73 billion.

  The Semiconductor Industry Association said industrywide sales in July fell to US$10.9 billion from US$17.3 billion a year earlier. Sales for the month dropped 6.1 percent from June.

  Intel investors would be disappointed with anything less than US$6 billion in third-quarter sales, said Paul Berlinguet, manager of the John Hancock Large Cap Growth Fund, which owns the stock.

  Intel Executive Vice President Paul Otellini last week again said that the company expects sales during the next few months to be stronger than in the first half of this year.

  "Anything has to be better than the first half," he said.

  Even if Intel's sales reach the lower end of its targets, shareholders said the Santa Clara, California-based chipmaker may shave its estimates for gross margin, or the percentage of revenue left after subtracting manufacturing costs.

  "The most significant thing in the near term for Intel is the recent lowering of prices and really starting a price war with AMD," said Mike Cohen, manager of the Alpha Analytics Digital Future Fund, which sold its Intel stake last month.

  Rival Advanced Micro Devices Inc. last week said third- quarter sales will fall 15 percent from the previous period, the bottom end of the 10 percent to 15 percent range the company gave earlier. Advanced Micro expects a loss as it slashes prices to keep up with Intel, even as chip shipments rise from a year ago.

  Intel has predicted gross margin of 47 percent for the quarter, plus or minus a couple points, and 49 percent for the year. Gross margin was 64 percent in the year-earlier quarter.

  A margin at a percentage in the mid-40s would be disappointing, Hancock's Berlinguet said.

  In the second quarter, PC shipments dropped from a year earlier for the first time since 1986, and analysts continue to push back expectations for a rebound in demand for communications gear. Some PC and chip companies said they expected back-to-school and holiday sales to cause a jump in demand in the second half.

  Now, PC-industry executives have indicated that back-to-school sales so far have been subdued, as consumers spend less during an economic slowdown.

  Dell Computer Corp last month predicted sales in the current period would be little changed to 5 percent lower than the previous quarter, missing analyst expectations at the time. Though Hewlett-Packard Co Chief Executive Carly Fiorina has said revenue will rise in the current quarter from the prior period, she said she didn't think the economy would pick up any time soon.

  "I don't think there's going to be a bright spot in the traditional PC space," Kokernak said. "We will not see a recovery until early next year at best."
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