Intel profits plummet by 35% amid price cuts
Net income fell to $1.3 billion (€1.03bn), or 22 cents a share, from $2bn (€1.59bn), or 32 cents, a year earlier, Santa Clara, California-based Intel said yesterday in a statement.
Sales slumped 12% to $8.74bn (€6.96bn).
Chief executive officer Paul Otellini offered discounts to sell off older chips and make room for newer models to win back market share, limiting profit margins in the quarter. Smaller rival Advanced Micro Devices has won more than 20% of the market for microprocessors that run computers.
“It’s still a commoditised business, and there is a lot greater competition,” said Matt Kelmon, who helps manage $225 million at Kelmoore Investment Co in Palo Alto, California. The firm owns 500,000 Intel shares.
Profit was 21 cents a share excluding a 1.5-cent gain. That beat an estimate of 18 cents from Prudential Equity Group’s Mark Lipacis, who has StarMine Inc’s top rating for accuracy in predicting earnings. His projection matched the average in a Thomson Financial survey.
Intel shares fell 71 cents to $20.90 in late trading in Nasdaq Stock Market composite trading. They have declined 16% this year, making the stock the worst performer in the Dow Jones Industrial Average.
Fourth-quarter sales will fall to $9.1bn to $9.7bn, compared with an average estimate of $9.5bn in a Thomson Financial survey of 32 analysts.
Mr Otellini, 56, has started the largest overhaul of the chipmaker’s operations since the 1980s. The company will shed 10,500 jobs to help lower costs by as much as $3bn annually starting in 2008. Intel plans to trim its workforce to 92,000 by the middle of 2007 from 102,500.
The new Core 2 Duo models may help revive sales during the crucial holiday shopping season, and some analysts are betting the third quarter will be the lowest point for Intel.
“AMD will have made some important and continual market share gains this current quarter, but that those market share gains will reverse starting in the fourth quarter and into 2007,” said John Lau, an analyst at Jefferies & Co in New York who rates the shares “buy” and said he doesn’t own them.
Intel’s market share has sunk to its lowest point in more than four years. The chipmaker had 72.9% of the market for personal-computer processors in the second quarter, down from 82.2% a year earlier, according to Cave Creek, Arizona- based Mercury Research.
AMD added new features and cut power consumption, rather than just making chips faster. That persuaded Dell Inc to end its exclusive use of Intel parts.
Intel’s earnings are seen as an indicator of demand for computers and components.
Mr Lipacis expected Intel’s third-quarter sales to drop 13%, and the average revenue forecast was $8.6bn, according to Thomson.
Of analysts tracked by Bloomberg, 22 recommend buying the stock, 18 advise holding and four say sell. Goldman, Sachs & Co’s James Covello cut his rating to “neutral” from “buy” today because the stock reached his $22 target price.
In other bad news for the technology sector, Motorola Inc, the world’s second- biggest maker of mobile-phones, said third-quarter profit fell 45% after a year-earlier gain. The shares fell as the company reported its smallest sales increase in five quarters.
Net income dropped to $968m, or 39 cents a share, from $1.75bn, or 69 cents, a year earlier, when a tax benefit and a stake sale added 39 cents a share to profit.
Sales advanced 17% to $10.6bn.
Meanwhile, Yahoo! Inc, owner of the most-visited website in the US, said third-quarter profit dropped 38% because of costs to expense employee stock options.
Net income fell to $158.5m, or 11 cents a share, from $253.8m, or 17 cents, a year earlier.
In more positive news, IBM, the world’s biggest computer-services company, said third-quarter profit jumped 47%, boosted by software acquisitions.
Chief executive officer Sam Palmisano bolstered profit by buying software companies that manage and monitor data, voice and video networks.
Net income rose to $2.22bn, or $1.45 a share, from $1.52bn, or 94 cents, a year earlier.
Sales gained 5.1% to $22.6bn.
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