Intel delivers financial 'comfort'

Intel's slowdown is part of overall US cutbacks, but also shows new strength of competition
Written by Sergio G.Non, Contributor

Analyst fears notwithstanding, the second quarter looks the same as it did in April, Intel said Thursday.

"The second quarter is shaping up pretty much as we expected," said Andy Bryant, Intel's chief financial officer.

In its first-ever midquarter report, the maker of PC processors, chipsets and communications chips said revenue, gross margin and expenses for the second quarter will be slightly below the midpoint of the range predicted by the company in April. At that time, Intel called for second-quarter revenue to range between $6.2bn (£4.2bn) and $6.8bn, with a gross margin of roughly 49 percent.

First Call consensus was predicting a second-quarter profit of 11 cents per share on revenue of $6.3 billion.

Shares of Intel traded at $32.66 in after-hours activity on the Island ECN following Intel's report. Intel rose $1.34 to $31.16 in Thursday's regular trading ahead of the news.

Analysts were generally expecting glum news on Thursday because prominent PC companies in recent weeks have warned of continued weakness in their industry. But Intel's core business of PC processors is seeing second-quarter demand in line with past years, Bryant said, during a conference call with analysts.

"It's possible that we had different expectations and they (PC makers) were hoping for a quicker type of recovery," Bryant told analysts. "It wouldn't be possible, quite frankly, to be more seasonally normal in our PC business... The fact that it has acted normally is a pretty comforting set of information."

The company expects its overall business to improve in the second half of the year. Many observers have been optimistic about the latter part of 2001 because chip inventories have been reduced at PC manufacturers. The last several months of the year also encompass the back-to-school and holiday seasons.

"Intel was probably even a little bit more optimistic than people expected," said James Ragan, analyst with Crowell Weedon. "I tend to think Intel's got a handle on it because they see information from everyone, while PC vendors only see things with their own companies."

Intel's confidence is largely based on orders early in the second quarter. But Thomas Weisel Partners analyst Eric Ross believes things became progressively worse in April and May.

"There's still 40 percent of the quarter do go in June. We don't know what's going to happen in June, and Intel doesn't either," he said.

Not all of Intel's revenue decline this year can be blamed on the economy. Many analysts have pointed out that Intel has lost PC market share at the low and middle ranges to AMD. Intel has slashed prices on Pentium 4 chips to try to regain market share, but Bryant on Thursday refused to say how effective those price cuts have been.

Part of the problem, Ross said, is that Pentium 4 systems remain more expensive than their AMD counterparts even with Intel's price cuts. Pentium 4 chips require Rambus memory, which is more expensive than the double-data-rate (DDR) memory used with AMD processors, and it requires a different motherboard setup, which adds more to the cost of a PC, Ross said. Pentium 4 chipsets for DDR memory are expected later this year.

"Intel is feeling the effects of a stronger AMD," Ross said.

Flash memory sales also remain on track with earlier forecasts, Bryant said. But the market for Intel's other business, communications chips, is still growing weaker, Intel's CFO said.

"At this point, we're not calling a bottom in the communications silicon business," he said. "It's just too murky to know."

Bryant's comments echoed recent reports from other suppliers of networking chips. Broadcom on Wednesday warned it would fall short of second-quarter expectations.

Intel will post formal results for the quarter on 17 July. The midquarter update for analysts, investors, Intel employees and others is a new program for the company.

See Chips Central for the latest on processors and the semiconductor industry.

Have your say instantly, and see what others have said. Click on the TalkBack button and go to the Chips Central forum

Let the editors know what you think in the Mailroom. And read other letters.

Editorial standards