July 20, 2006 Price War With A.M.D. Takes Toll on Intel Sales and Profit By LAURIE J. FLYNN NY Times
http://www.nytimes.com/2006/07/20/technology/20chip.html?pagewanted=print SAN FRANCISCO, July 19 Intel reported a sharp decline in sales and profit for the second quarter on Wednesday as it grappled with a slowdown in the personal computer industry and a price war resulting from its fierce competition with Advanced Micro Devices. Intel reported a profit of $885 million, or 15 cents a share, for the second quarter. That figure included a 4-cent-a-share expense for stock options. The results were 57 percent lower than the profit of $2.04 billion, or 33 cents a share, in the second quarter of last year. Sales fell 13 percent, to $8.01 billion, from $9.23 billion in the period a year earlier. Analysts surveyed by Thomson Financial had predicted that Intel would report sales of $8.3 billion and earnings of 13 cents a share. The company also provided a disappointing forecast for the third quarter, predicting that sales would be $8.3 billion to $8.9 billion, lower than the average analyst forecast of $9.03 billion. Andy D. Bryant, Intels chief financial officer, said competition and pricing pressure were among the companys biggest challenges during the quarter. But Paul S. Otellini, Intels chief executive, said he felt confident that the companys aggressive rollout of new products, coupled with belt-tightening announced in April, would put the company back on track. We have a tight handle on spending and are making good progress, Mr. Otellini said in a conference call with analysts after the earnings announcement. In April, Intel announced a sweeping restructuring aimed at improving efficiency and trimming costs, and at speeding the completion of critical projects like its new chip architecture, known as Core. Intel plans to release its first mainstream desktop PC chip based on the new architecture next week, slightly sooner than expected. The earnings report, issued after the close of the market, pushed shares of Intel down slightly in after-hours trading. They had ended regular trading up 28 cents, at $18.49. The bright spot of the quarter for Intel was its gross profit margin of 52.1 percent, better than its April forecast of 49 percent but still down sharply from last year. The company attributed the strength in the second quarter to lower-than-expected production costs. But the executives warned that gross margin would decline again, to 49 percent this quarter, because of lower prices and costs associated with ramping up production of new products. One surprise from Intel was its inventory levels, which have taken a heavy toll on its profit margin in the past. In the second quarter, inventories swelled to $4.3 billion, an increase of about 20 percent over last year, causing some concern among analysts. But Mr. Otellini defended the inventory levels, contending that Intel needed to build inventory so it could avoid the trouble it has had in the past with meeting customer demand. Im very comfortable with the current build plan and factory loading, he said. Apjit Walia, an analyst with RBC Capital Markets, said that while the inventory level came as a surprise, it indicated a certain optimism on Intels part. Over all, the fact theyre building inventories means Intel executives are thinking sales will be strong in the second half, Mr. Walia said. In April, Mr. Otellini vowed to cut $1 billion in expenses, and last week the company announced it would start by cutting 1,000 management positions. Intel said in June that it was selling its communications chip business to Marvell Communications, and some analysts have speculated that Intel may also sell its memory chip business. The restructuring story is just starting, Mr. Walia said. Like many analysts, he expects Intel to announce many more layoffs in the second half of the year. On Thursday, A.M.D. is expected to announce that its sales in the second quarter declined 9 percent from last year, providing further evidence that the price war between the two companies is taking its toll. ================================ George Antunes, Political Science Dept University of Houston; Houston, TX 77204 Voice: 713-743-3923 Fax: 713-743-3927 antunes at uh dot edu Reply with a "Thank you" if you liked this post. _____________________________ MEDIANEWS mailing list [email protected] To unsubscribe send an email to: [EMAIL PROTECTED]
