Intel hits its Q1 numbers, but will cut 3,000 jobs

The announcement came as Intel (INTC) came in with earnings that were in line with tempered expectations for the first quarter, putting a final coda on one of the chip maker's more disappointing finishes in recent years.

"What you'll see is a slow attrition over the next couple of quarters," said the company's chief financial officer, Andy Bryant. Intel will cut jobs over the next six months, but expects attrition, not lay-offs, as the primary source of cuts.

Intel's growth has had a marathon run. The last time the Santa Clara, Calif. company pared back its workforce was in 1986.

"We decided to get out of the memory chip market and into processors," said a spokesman. "It was a fundamental change in our industry focus."

This time, the cuts are aimed at getting the company's expenses under control, according to Intel. In the past two years, Intel has added over 25,000 employees, bringing its total to 65,000.

	Intel's earnings were closely watched by antsy investors.

The company, which has been on a rapid pace of plant expansion in the last five years, is also pulling in the reins on capital spending, which will decline to $5 billion in the second quarter from $5.3 billion.

Explaining the twin moves, Bryant said, "We got ahead of ourselves in adding heads and in capital spending," Bryant said. "What we are trying to do is take a breath and let the business grow back up."

During the quarter, Intel's sales declined to $6 billion from $6.4 billion a year ago. The company finished with $0.72 in earnings per share, following a charge associated with its purchase of Chips & Technologies Inc. Without the charge, Intel had $0.81 earnings per share.

The First Call consensus looked for a profit of $0.72 per share.

Last quarter, Intel reported a profit of $1.7 billion, or $1.07 per share, on sales of more than $6.5 billion.

Tense time for the industry
"Historically, Intel always beats the numbers," said Bill Milton, analyst at Brown Brothers Harriman. But the numbers come at a time when many in the PC industry are in a tense state of mind, as sales growth appears in danger of slowing.

The NASDAQ Composite Index rose more than 16 points Tuesday, as investors bet Intel would have positive comments about its second-half prospects during a conference call later in the day. The index unofficially closed up 17.86 points -- or 0.98 percent -- to 1,842.81 on volume of 772 million shares. Advancers unofficially led decliners 2,553 to 1,959.

In the first week of March, Intel had warned that its first-quarter revenues would be off 10 percent from its fourth quarter. After making more than $1 per share in its previous three quarters, Intel reported its lowest quarterly earnings-per-share since making $0.59 per share in the second quarter of 1996.

Intel's announcement came just days after Applied Materials Inc. (AMAT) warned that sales throughout 1998 would be flat and a week before Cabletron Systems Inc. (CS) would fall well short of expectations. Also, Compaq Computer Corp. (CPQ) said it would miss its first-quarter numbers.

However, Paul Otellini, Intel's executive vice president of sales and marketing, rejected suggestions that the company -- or the rest of the computer industry, for that matter -- was mired in a lingering slowdown.

Slowdown, or just slow?
"I want to be careful about using the word 'slowdown.' I still believe there'll be growth in the PC industry," he said. "There's less growth than we anticipated a quarter or two ago."

He declined to be more specific.

Intel also projected that second-quarter revenue would be flat to slightly down, although revenue growth is expected to resume during the second half of the year.
The company instructed analysts to downwardly revise their estimates of Intel's full-year gross profit margins to 52 percent. Intel finished the first quarter with 54 percent profit margins.

While describing the first quarter as "disappointing," Intel nonetheless predicted a turnaround during the second half.

"I do expect the OEM inventory situation to improve," said Otellini.

Wednesday will bear watching
In the aftermath of the mixed picture, Intel's stock is sure to be a high-profile issue Wednesday.

Intel was by far the most actively traded NASDAQ stock Tuesday before its first-quarter earnings report was released. At one point, the company's shares were up more than $2 from their close.

"Everyone wants to know how Intel did, because they are the real barometer," said David Wu, an analyst at the Chicago Corp. "You'll see equal parts greed and fear (Wednesday) after Intel reports. It's the nature of the beast."

Intel shares were trading near $95 per share in February before firing off its earnings warning. In the past month, the stock has stagnated at around $75 per share.

A repeat of 1997?
The situation is eerily similar to that of the third quarter of 1997. Coming off a red-hot summer that included 60-percent and 100-percent growth, respectively, for Dell (DELL) and Compaq (CPQ), a batch of earnings warnings held technology stocks in check through the fourth quarter.

"It's the same thing, really, just another set of problems," said Megan Graham-Hackett, an analyst at S&P Equity Group. "Then, it was fourth-quarter sales and the possibility of interest rates being raised. Now, it's Asia and perhaps some unrealistic expectations." Intel Corp. will cut jobs, but it will wait until the third quarter of the year before it swings the ax to cut most of the 3,000 jobs it wants to eliminate.

The announcement came as Intel (INTC) came in with earnings that were in line with tempered expectations for the first quarter, putting a final coda on one of the chip maker's more disappointing finishes in recent years.

"What you'll see is a slow attrition over the next couple of quarters," said the company's chief financial officer, Andy Bryant. Intel will cut jobs over the next six months, but expects attrition, not lay-offs, as the primary source of cuts.

Intel's growth has had a marathon run. The last time the Santa Clara, Calif. company pared back its workforce was in 1986.

"We decided to get out of the memory chip market and into processors," said a spokesman. "It was a fundamental change in our industry focus."

This time, the cuts are aimed at getting the company's expenses under control, according to Intel. In the past two years, Intel has added over 25,000 employees, bringing its total to 65,000.

	Intel's earnings were closely watched by antsy investors.

The company, which has been on a rapid pace of plant expansion in the last five years, is also pulling in the reins on capital spending, which will decline to $5 billion in the second quarter from $5.3 billion.

Explaining the twin moves, Bryant said, "We got ahead of ourselves in adding heads and in capital spending," Bryant said. "What we are trying to do is take a breath and let the business grow back up."

During the quarter, Intel's sales declined to $6 billion from $6.4 billion a year ago. The company finished with $0.72 in earnings per share, following a charge associated with its purchase of Chips & Technologies Inc. Without the charge, Intel had $0.81 earnings per share.

The First Call consensus looked for a profit of $0.72 per share.

Last quarter, Intel reported a profit of $1.7 billion, or $1.07 per share, on sales of more than $6.5 billion.

Tense time for the industry
"Historically, Intel always beats the numbers," said Bill Milton, analyst at Brown Brothers Harriman. But the numbers come at a time when many in the PC industry are in a tense state of mind, as sales growth appears in danger of slowing.

The NASDAQ Composite Index rose more than 16 points Tuesday, as investors bet Intel would have positive comments about its second-half prospects during a conference call later in the day. The index unofficially closed up 17.86 points -- or 0.98 percent -- to 1,842.81 on volume of 772 million shares. Advancers unofficially led decliners 2,553 to 1,959.

In the first week of March, Intel had warned that its first-quarter revenues would be off 10 percent from its fourth quarter. After making more than $1 per share in its previous three quarters, Intel reported its lowest quarterly earnings-per-share since making $0.59 per share in the second quarter of 1996.

Intel's announcement came just days after Applied Materials Inc. (AMAT) warned that sales throughout 1998 would be flat and a week before Cabletron Systems Inc. (CS) would fall well short of expectations. Also, Compaq Computer Corp. (CPQ) said it would miss its first-quarter numbers.

However, Paul Otellini, Intel's executive vice president of sales and marketing, rejected suggestions that the company -- or the rest of the computer industry, for that matter -- was mired in a lingering slowdown.

Slowdown, or just slow?
"I want to be careful about using the word 'slowdown.' I still believe there'll be growth in the PC industry," he said. "There's less growth than we anticipated a quarter or two ago."

He declined to be more specific.

Intel also projected that second-quarter revenue would be flat to slightly down, although revenue growth is expected to resume during the second half of the year.
The company instructed analysts to downwardly revise their estimates of Intel's full-year gross profit margins to 52 percent. Intel finished the first quarter with 54 percent profit margins.

While describing the first quarter as "disappointing," Intel nonetheless predicted a turnaround during the second half.

"I do expect the OEM inventory situation to improve," said Otellini.

Wednesday will bear watching
In the aftermath of the mixed picture, Intel's stock is sure to be a high-profile issue Wednesday.

Intel was by far the most actively traded NASDAQ stock Tuesday before its first-quarter earnings report was released. At one point, the company's shares were up more than $2 from their close.

"Everyone wants to know how Intel did, because they are the real barometer," said David Wu, an analyst at the Chicago Corp. "You'll see equal parts greed and fear (Wednesday) after Intel reports. It's the nature of the beast."

Intel shares were trading near $95 per share in February before firing off its earnings warning. In the past month, the stock has stagnated at around $75 per share.

A repeat of 1997?
The situation is eerily similar to that of the third quarter of 1997. Coming off a red-hot summer that included 60-percent and 100-percent growth, respectively, for Dell (DELL) and Compaq (CPQ), a batch of earnings warnings held technology stocks in check through the fourth quarter.

"It's the same thing, really, just another set of problems," said Megan Graham-Hackett, an analyst at S&P Equity Group. "Then, it was fourth-quarter sales and the possibility of interest rates being raised. Now, it's Asia and perhaps some unrealistic expectations."