Home Companies Industry Politics Money Opinion LoungeMultimedia Science Education Sports TechnologyConsumerSpecialsMint on Sunday

Intel sees more hard times in 2009

Intel sees more hard times in 2009
Comment E-mail Print Share
First Published: Fri, Jan 16 2009. 11 08 AM IST
Updated: Fri, Jan 16 2009. 11 08 AM IST
San Jose: Intel Corp. appears to be playing it safe with an ugly first-quarter forecast.
The chip maker reported on Thursday that profit plunged 90% and sales slipped 23% during the last three months of the year, matching analysts’ subdued estimates.
Wall Street was braced for the bad news: Intel had lowered its fourth-quarter guidance twice, including once just last week, warning that weaker-than-expected PC demand was hammering down demand for its microprocessors.
So what about 2009? Intel said it doesn’t know when demand will pick back up, so the Santa Clara-based company set the bar low and offered first-quarter guidance at the low end of what analysts were expecting.
Intel said it 2009 sales will likely be around $7 billion, which translates to a decline of more than 25% from the first quarter of 2008. Gross profit margin should also sink sharply, falling from more than 50% of sales to the low-40% range, it said.
Gross profit is a key measure of how well a company is controlling its costs, but falling demand, heavy investment in factory upgrades and big costs for running factories at less than full throttle will all take their toll on Intel’s bottom line.
Intel said the financial crisis has made it so difficult to predict revenue that the company wouldn’t offer a precise estimate. Analysts surveyed by Thomson Reuters were expecting $7.3 billion in sales, on average, but estimates ranged from $6.6 billion to as high as $9.3 billion.
The profit forecast was below many estimates, but was good enough to send Intel’s shares up 3.8 percent in after-hours trading.
Intel’s Chief Financial Officer Stacy Smith said in an interview that computer-makers’ inventory levels fell in the fourth quarter and continued falling into the first quarter, which means they’re not buying as many new chips. He said Intel’s product lineup positions the company well to take advantage when demand starts rising again, but Smith cautioned that no one knows yet when that might be.
In the fourth quarter, Intel’s net income was $234 million, or 4 cents per share, compared with $2.3 billion, or 38 cents per share, in the year-ago period.
Profits were squeezed by a freeze in information-technology spending and a shift toward low-margin processors for a class of little laptops known as “netbooks.” A big reason for the severity of the fourth-quarter drop, though, was a $1 billion writedown of the value of Intel’s investment in Internet provider Clearwire Corp.
Clearwire specializes in a new type of wireless broadband technology called WiMax that Intel is building into its chips, and has stumbled on fears the credit crunch will derail its ambitious network buildout plans.
Intel’s sales were $8.2 billion, a 23% shortfall from last year.
For all of 2008, Intel earned $5.3 billion, 24% lower than a year ago, on sales of $37.6 billion, a 2% decline.
PC demand is sinking fast, which takes its toll on Intel because Intel owns 80% of the market for microprocessors, the brains of personal computers. Market research firms IDC and Gartner Inc. reported this week that PC sales growth in the fourth quarter was the worst it’s been in six years, with the slump expected to drag out until possibly 2010.
One area where Intel shines is controlling its manufacturing costs, where it enjoys a big advantage over smaller rival Advanced Micro Devices Inc. Intel’s quicker transition than AMD to 45-nanometer manufacturing technology, which shrinks the size of the chips’ circuitry, has made each chip cheaper to produce. That has helped cushion the blow of falling sales.
AMD which has lost billions of dollars over the past two years, recently changed CEOs, and is spinning off its factories to save money warned that its fourth-quarter sales will likely come in 33% lower than last year. AMD reports quarterly results Jan. 22.
During the regular trading session before the earnings report, Intel stock rose 21 cents, 1.6%, to close at $13.29. The shares hit $13.85 in after-hours trading.
Comment E-mail Print Share
First Published: Fri, Jan 16 2009. 11 08 AM IST
More Topics: US | Earnings | Intel | Technology | Computers |