Intel hits dismal targets
Published: 18 Apr 2001 08:11 BST
In its worst quarter in years, Intel yesterday edged past lowered earnings expectations for the first quarter but said it's still going to be a tough year.
The chipmaker reported earnings excluding one-time costs of $1.1bn (£780m) for the first quarter. Revenue came to $6.7bn (£4.7bn), just over analyst expectations; those polled by First Call predicted revenue of $6.5bn (£4.6bn).
The figures, however, pale in comparison to Intel's results for the same period last year and even last quarter. Net income for the first quarter of 2000 came in at $3bn (£2.1bn), 64 percent higher. Revenue stood at $8bn (5.6bn), about 16 percent higher.
Improvement in the financial picture is going to take time, Intel executives said. On the positive side, the PC market has stabilized to some degree and the industry could see a rebound in the second half. The company also shipped its one millionth Pentium 4 chip.
"We believe our PC businesses have bottomed out, and we are planning for a seasonally strong second half," Paul Otellini, general manager of the Intel Architecture Buisness Group, said in a conference call following the earnings announcement.
But Intel's optimism came with a number of qualifications. In the second quarter, PC processor price cuts will likely reduce revenue and profits, said Intel chief financial officer Andy Bryant. Measures that will reduce the cost of manufacturing Pentium 4 chips won't take place until the fourth quarter.
The worldwide economic situation also remains in flux, both executives said. Partly as a result, Otellini said, the traditional seasonal upswing in the second half won't be as strong as in years past, when double-digit growth was the norm.
Further, Intel's communications and flash memory businesses "will have a longer, slower recovery beginning later this year," said Bryant, who added that "hiring has essentially been frozen."
Intel shares were up $2.49, or 9.5 percent, to $28.79 in after-hours trading Tuesday on the Island ECN network.
Including acquisition costs and other one-time expenses, income for the most recent quarter came to $485m (£340m), an 82 percent decline from net income of $2.7bn (£1.9bn) achieved a year ago.
Nearly all product divisions saw lower sales this quarter, the company said in a statement, and the average price of microprocessors declined.
The results were largely in line with the company's warning on 8 March that weak sales of PC processors, server chips, flash memory and networking chips around the world would lead to revenue of around $6.5bn (£4.5bn). As a result, Intel said it would reduce its work force by six percent, or 5,000 jobs, and impose cost-cutting measures.
Many segments were off in the first quarter. Sales of server chips unexpectedly plummeted while notebook processor prices dropped, said Otellini. Intel also saw slow desktop chip sales because of higher than normal inventories at PC manufacturers.
"European sales declined more than seasonality would indicate," he added.
The quarterly revenue figures were the lowest for Intel since mid-1998, and analysts believe further hard times await the processor giant.
"This year is a write-off for the company," said Ashok Kumar, an analyst with US Bancorp Piper Jaffray. "The margins are probably going to be cut in half... You're not going to see any seasonal pickup."
Both Intel and rival AMD countered the slowdown with price cuts. Intel will cut prices on the Pentium 4 twice this month, an unprecedented pace.
Out in the real world, Cisco's lost staff, especially the technical people, will be snapped up by bricks-and-mortar corporates, desperate to move into the next phase of the growth of e-commerce. Guy Kewney says: Cisco may have hiccupped; but nothing can actually stop the Internet now. Go to AnchorDesk UK for the news comment.
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