Merced's complete but Intel misses earnings

Intel Corp. on Tuesday missed analysts' expectations for its second fiscal quarter but said its 64-bit Merced chip's design is complete.

Intel Senior VP Paul Otellini said Intel is on track to ship Merced to OEMs this quarter. He also said Intel expects an improved second half and is counting on continued cost controls and shipments of new 8-way servers to boost growth.

Intel yesterday missed earnings by two cents per share, reporting sales of $6.75 billion and earnings of $1.75 billion or 51 cents per share.

Intel blamed its troubles on a seasonal decline in shipments of processors from Q1 to Q2, which, in turn, depressed revenues and absolute margins. The average selling price of Intel processors also declined in Q2, as Intel sought to regain lost marketshare on the desktop with Celeron, its low-end processor.

However, gross margins were up substantially and Intel executives said they will continue to rise slightly for the rest of this year along with revenues. Spending on research and development is also up, and Otellini said unit sales of Pentium III tripled over Q1 and should outstrip Pentium II sales this quarter.

Coppermine, Intel's upcoming Pentium III processors which have already slipped once, are on target to ship second half. Otellini said Coppermine was not robust enough for Intel's .18 micron manufacturing process, which is in its infancy, and that Intel is working on "speedpath issues."

Bright spots included sales of flash memory for cell phones and networking products, although chipset sales were flat and motherboard sales were down. Intel also in June managed to decrease distributor inventories, enabling it to ship more product straight from manufacturing.

Although Intel touted upcoming products such as Coppermine, executives made no mention of the company's plans to build Internet data centres starting this autumn.

Take me to the Merced Special.