NEW YORK (CNNfn) - Chipmaker Intel Corp. on Tuesday reported a second-quarter profit that was slightly better than Wall Street had expected on sales that fell 24 percent from the same period last year.|
And executives of the world's largest computer chipmaker said they expect revenue and profit margins in the current quarter to be slightly below prior expectations as the company accelerates the manufacture of its high-end Pentium 4 processors and prices them to move.
After the close of trading, Intel said it earned $854 million, or 12 cents per share, during the quarter excluding acquisition-related costs. That reflects a 76 percent decline in profit from the 50 cents per share Intel reported during the second quarter last year, and is 2 cents better than the 10 cents per share analysts generally had expected, according to a survey conducted by earnings tracker First Call.
Including acquisition-related costs, Intel's second-quarter net income was $196 million, or 3 cents per share, compared with $3.1 billion, or 47 cents per share, during the same period a year ago.
At $6.3 billion, Intel's second-quarter revenue was on the low end of the range executives said they expected at the outset of the quarter and met analysts' expectations. During the second quarter of 2000, Intel logged revenue of $8.3 billion.
Intel executives said the company's core microprocessor business performed better than expected, with sequential growth in units, while sales of flash memory and other products were below their expectations.
In a mid-quarter financial update on June 7, Andy Bryant, Intel's chief financial officer, said the company's revenue for the quarter would be on the lower end of the $6.2 billion-to-$6.8 billion forecasted range he provided at the outset of the quarter.
He did not provide a specific per-share earnings estimate but said he expected the company's gross margin, the percentage of sales remaining after subtracting product costs, would slip to about 49 percent, plus or minus a couple of points, from 51.7 percent in the first quarter.
As it turned out, Intel reported a second-quarter gross margin of 47.8 percent.
During a teleconference with analysts Tuesday evening, Bryant said he expects Intel's margins in the third quarter to continue to slip, attributing the decline in large part to anticipated lower average selling prices for the company's microprocessors.
"Our expectation for gross margin percentage in the third quarter is 47 percent, plus or minus a couple of points," Bryant said. "The change from the second quarter is driven largely by lower average selling prices of microprocessors."
Bryant said he expects Intel's third-quarter revenue to range between $6.2 billion and $6.8 billion. The Street most recently had anticipated Intel's third-quarter revenue to be $6.5 billion, according to the First Call survey.
Shares of Intel (INTC: up $0.77 to $29.90, Research, Estimates) rose 77 cents to $29.90 on Nasdaq ahead of the earnings news. They fell 45 cents to $29.45 in extended-hours trade.
Eric Rothdeutsch, a semiconductor analyst at Robertson Stephens, told CNNfn's Street Sweep Tuesday that the pressure on the stock is likely the result of concerns about gross margins. (410K WAV) or (410K AIFF)
Last week, Advanced Micro Devices (AMD: up $0.42 to $20.42, Research, Estimates), which runs a distant second to Intel in the PC processor and flash memory markets, logged a second-quarter profit that was substantially lower than it had expected at the outset of the quarter, blaming the miss in large part to increased price pressure.
While it still garners roughly 80 percent of the market, Intel has been aggressively pricing its newest Pentium 4 processors in an effort to thwart the advances of AMD, whose Athlon and Duron brand processors have been steadily pecking away at Intel's market share.
Earlier this month, Intel rolled out its fastest Pentium 4 processors, operating at 1.8 gigahertz, priced at $562 in thousand-unit quantities. When the company introduced the Pentium 4 nine months ago, the 1.5 GHz version was priced at $819. Just this week, Intel cut prices on some of its Pentium 3 chips by as much as 37 percent.
For all of 2001, Bryant said he expects Intel's gross margin to be 49 percent, plus or minus a few points, which is lower than previous expectations for a gross margin 50 percent, plus or minus a few points.
Paul Otellini, executive vice president and general manager of Intel's architecture group, said the full year's gross margin will be impacted in part by the company's plans to accelerate the rollout of faster Pentium 4 chips in the second half of the year.
During the second half, Otellini said Intel expects it will be shipping only Pentium 4 processors for use in desktop computer, phasing out its Pentium 3 line. When the company introduced the Pentium 4, Intel had expected them to replace Pentium 3 on the desktop in early 2002.
Further, Otellini said the company expects to bring the maximum speed of the Pentium 4 to 2 GHz by year end.
Toward that end, Intel executives said they would continue to add manufacturing capacity, and they stood by their previous capital expenditure target for the year.
"We are well way to meeting our 2001 target of $7.5 billion in capital spending having deployed just under two-thirds of this in the first half," Bryant said. "The bulk of these dollars have gone to new technologies that enable us to make products at higher volumes with lower overall unit costs and higher performance."
At the same time, Bryant said Intel will pare back its spending on research and development in the third quarter to $4 billion, where it previously had expected to spend $4.2 billion on R&D. He said that reduction is primarily due to cuts in discretionary spending within ongoing programs.