Intel Beats Views Despite Declines

Posted 18 October 2006 @ 08:51 am EET     Print     Reprint     E-Mail     Comments

NEW YORK (AP) - After a couple of lackluster quarters, Intel Corp.'s results have bottomed out and should improve in the fourth quarter and next year, according to its chief financial officer.

The world's largest chip maker Tuesday reported a 35 percent decline in third-quarter profits and a 12 percent decline in revenue, but beat Wall Street's expectations and shipped record numbers of chips for mobile devices and computer servers.

"We lost market share and were under price pressure," CFO Andy Bryant said in a phone interview with The Associated Press after the earnings were released. "We still have to live with tough year-over-year comparisons but we think the worst is behind us." Shares in Intel dropped 71 cents, or 3.3 percent, to close at $20.90 on the Nasdaq Stock Market.

After the earnings were released, shares gained 21 cents, or 1 percent, in extended trading.

Net income for the three months ended Sept. 30 was $1.3 billion, or 22 cents a share, compared with $2 billion, or 32 cents, in the same period last year. Revenue fell to $8.74 billion from $9.96 billion. Analysts had been expecting profits of $1.01 billion, or 17 cents a share, on sales of $8.62 billion, according to a survey by Thomson Financial. "They beat expectations, but their expectations were really low," said Jane Snorek, a technology analyst from First American Funds in Minneapolis. Bryant expressed confidence that performance would improve in the fourth quarter and throughout 2007.

He emphasized that revenue in the current quarter would be between $9.1 billion and $9.7 billion, in line with analysts' expectations averaging $9.46 billion.

Intel began initial shipments in the third quarter of the world's first "quad-core" processor chips. Chips are the powerful brains that allow a computer to function, and having four computing cores delivers better performance than the previous lines of chips, with only one or two cores.

The shipments are months ahead of those expected from Intel's nimble rival, Advanced Micro Devices Inc., which has been dramatically gaining market share that Intel once had nearly to itself.

Intel's chief financial officer, Andy Bryant, acknowledged Tuesday that the chip maker's financial performance bottomed out in the last two quarters but he expressed confidence that performance would improve in the fourth quarter and throughout 2007. He emphasized that revenue in the current quarter would be between $9.1 billion and $9.7 billion, in line with analysts' expectations averaging $9.46 billion.

"We lost market share and were under price pressure," Bryant said in a phone interview with The Associated Press after the earnings were released. "We still have to live with tough year-over-year comparisons ... but we think the worst is behind us."

Last month, Intel announced the elimination of 10,500 jobs about 10 percent of its work force through layoffs, attrition and the sale of underperforming business groups as part of a massive restructuring. The cuts were expected to save the company $3 billion per year by 2008.

AMD, which is boosting capacity at its chip-making factories, has been particularly strong in the server processor market. The Sunnyvale-based company now sells more than one in four of all x86 server processors worldwide, according to Mercury Research. AMD's overall market for x86 processors is now more than 21 percent, thanks to customers such as Hewlett-Packard Co. and other computer makers.

Based on its closing price Tuesday, Intel's price-to-earnings ratio a critical measure of Wall Street's bullishness of a company was 19. AMD, which closed Tuesday at $24.48, had a price-to-earnings ratio of 26. But Intel President and Chief Executive Paul Otellini insisted Tuesday that Intel's technology was superior to AMD's, and customers would pick Intel even if AMD's chips were cheaper.

"Not all capacity is equal," Otellini said during a conference call. For the first nine months of the year, Intel's net income fell 42 percent, to $3.54 billion from $6.21 billion in the year-ago period. Revenue declined 10 percent, to $25.69 billion from $28.63 billion.

Intel employed about 99,900 workers as of Sept. 30, down from 102,500 a quarter earlier. The company, which has $7.12 billion in cash, said it will spend $125 million in restructuring costs in the current quarter. It plans to spend $1.39 billion on research and development in this quarter and $5.9 billion for the year.