Servers, mobiles, drive Intel Q3 profit
Matthew Fordahl in San Jose
October 13, 2004
DRIVEN by record sales of server and mobile microprocessors and a bigger slice of the flash memory market, Intel's third-quarter profits rose 15 per cent.
The jump came even as the company struggled with lacklustre PC sales, excess inventory and stiff competition.
But the world's largest semiconductor company also said it expects a weaker-than-usual Christmas season, with overall sales between $US8.6 billion ($11.8 billion) and $US9.2 billion.
"We've forecasted revenues a bit below what you'd normally expect for the fourth quarter," Intel chief financial officer Andy Bryant said. "It's not a dramatic change from normal, but just a little light."
Intel said it earned $US1.9 billion, or US30c per share, on sales of $US8.5 billion for the three months ended September 25. In the same period last year, the company earned $US1.7 billion, or US25c per share, on sales of $US7.8 billion.
The latest results include a tax-related gain that boosted per-share profits by US3.6c.
Analysts were expecting Intel to post a profit of US27c per share on sales of $US8.4 billion, according to a survey by Thomson First Call.
Last month, the company lowered its revenue forecast, citing lacklustre demand. At the time, it estimated sales would range from $US8.3 billion to $US8.6 billion, down from the original estimate of up to $US9.2 billion.
Intel also warned that its gross margins were sagging, and that it continued to suffer from excess inventory.
"Growth was not as high as we originally anticipated due to inventory adjustments at some of our major customers and lower than expected overall demand for PCs," chief executive Craig Barrett said.
Mr Bryant said the company's biggest weakness was in consumer computer sales, particularly through US retailers. He said higher fuel prices may have played a role, as people have less money to spend on new computers.
"It's very difficult to find a direct link," Mr Bryant said. "China pulled back their economy a little bit. Oil prices went up a little bit. The US economy seems to be growing OK, but consumer confidence is down a little bit. You put it all together, and my guess is that it all has an effect."
To help absorb inventory, which started building up in the second quarter, the company is slowing production at its factories around the world. It also could write-off some or all the inventory as well as cut prices.
Intel also is facing renewed competition from Advanced Micro Devices (AMD), which in recent months has had some success with its high-end microprocessors leapfrogging Intel's Pentium 4 and Xeon offerings for desktops and servers.
In its earnings report last week, AMD reported strong sales of its Athlon processors for desktops and Opteron chips for servers. Executives claimed to be gaining some market share from Intel, though they declined to offer specific numbers.
Intel has countered with new Pentium 4 processors for desktops, though they have been criticised for running hot and not offering much of a performance boost over previous generations. Intel has also updated its Xeon chips for servers so that they can address more memory - a key benefit of AMD's technology.
Intel reported record microprocessor shipments in the third quarter, driven by its server and mobile computing chips. Motherboard and chip set revenues also set a record, though the margins are lower on those products and depressed the overall gross margin, Mr Bryant said.
Shipments of flash memory, which is used primarily in mobile phone handsets, was flat during the third quarter, though Intel claims to have captured additional market share from AMD. In fact, AMD reported that its flash shipments for mobile phones "declined significantly."
In recent months, Intel has also been plagued by a number of missteps, including a minor recall, a product cancellation and numerous delays in plans for new chips. In July, Mr Barrett sent an email to employees urging them to do a better job.
Overall, the company's results have been disappointing but did not signal another steep downturn. Rather, they confirmed short-term rather long-term issues, said Tobias Crabtree, portfolio manager with Leeb Capital Management.
"The major concern was that they'd miss the lower end of the previously lowered guidance," he said. While focusing on excess inventory, Wall Street seems to have ignored Intel's ability to get its products into the huge emerging markets of China and India, he said
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