Intel left with stockpile of chips as demand slumps

INTEL’S chief executive Craig Barrett hailed a new $2 billion factory in Leixlip, Co Kildare, as one of the best of its kind anywhere in the world when he opened the plant in June.

This was because it could churn out more than twice as many computer chips as older facilities.

Four months later, demand for Intel’s semiconductors from companies such as Dell has waned and Mr Barrett’s four-year, $26bn quest for faster output has saddled the Santa Clara, California-based company with a record stockpile of unsold chips.

Intel, the world’s largest chipmaker, cut production last quarter and may slow it further, said Michael Masdea, an analyst at Credit Suisse First Boston.

“There is inventory throughout the channel, there is inventory at Intel and sitting on Dell’s loading dock”, said Tim Allen, who helps manage about $5.7bn including 1.9 million Intel shares at Wentworth, Hauser & Violitch in Seattle.

Weakening consumer confidence and higher energy prices dented computer demand, analysts including Tim Luke at Lehman Brothers Holdings in New York said.

Consumer spending, which accounts for two- thirds of the US economy, was unchanged in August from July, the US Commerce Department said. Intel shares, among the worst performers in the 30-member Dow Jones Industrial Average this year, have slid 36% in 2004.

They rose 6 cents to $20.61 yesterday in Nasdaq Stock Market composite trading.

Intel slowed production at some of its 13 plants from Ireland to New Mexico this quarter and may cut production “aggressively’ this quarter and next, San Francisco-based Masdea said in a research note yesterday.

Mr Barrett on June 14 touted the Irish factory as an “embodiment of Intel’s commitment to high-volume, leading-edge manufacturing capacity”.

Demand then dropped and the firm last month cut its quarterly sales forecast for the first time in two years. Intel’s sales rose at least 18% in each of the past four periods. Intel will probably report earnings of 27 cents a share, compared with 26 cents in the same period a year earlier, according to analysts at Thomson Financial. Net income will probably rise 8% to $1.79 billion.

In its third-quarter results released last evening Intel reported revenues of $8.5 billion, up 5% sequentially and up 8% year-over-year.