Hit by reorganisation, Intel profit falls 39 per cent

Soft sales of chipset and motherboard units take a toll on Intel profit

Still reeling from the effects of a corporate reorganisation that included heavy layoffs, Intel reported a profit of $US1.5 billion for the fourth quarter, down 39 per cent compared to that period last year.

The company posted quarterly earnings of $US0.26 per share on revenue of $US9.7 billion. That revenue was down 5 per cent from the same quarter last year, but came in just above Wall Street estimates of $US0.25 per share earnings and $US9.44 billion revenue, according to analysts polled by Thomson First Call. However, Intel said its earnings were inflated by about $US0.01 per share because of one-time actions in its reorganization, such as the sale of its communications and application processor unit to Marvell Technology Group and the layoffs of 10,500 workers.

Intel had lost significant market share to rival, AMD over the year, but many observers felt the company had rebounded in recent months with the launch of many new chips, including the Core 2 Duo and quad-core Xeon chips.

The chipmaker said its sales of microprocessor units reached a record high, led by flash memory units. But that success was offset by soft sales of chipset and motherboard units, Intel said in a release. Overall, the company said it had a poor performance because it was unable to reduce its fixed costs or forecast product demand, while its competitors launched new products and exerted price pressure.

As expected, the company's profit also slumped when comparing the 2006 fiscal year to 2005. Intel reported an annual profit of $US5 billion, which was 42 per cent below its number last year.

For fiscal year 2006, Intel posted revenue of $US35.4 billion -- 9 per cent less than fiscal 2005 -- and earnings of $US0.86 per share -- 39 per cent less than 2005. The figures were slightly higher than analysts' expectations of $US35.13 billion annual revenue and $US0.84 earnings per share, according to Thomson.

The annual numbers fell short of Intel CEO, Paul Otellini's, own estimate, however. When he announced his plan to restructure the company in April, Otellini had predicted the company's operating income would tumble from $US12.1 billion in 2005 to $US9.3 billion in 2006. In fact, it reached only $US5.7 billion.

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Ben Ames

IDG News Service
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