Intel profit rises despite flat chip sales

Intel posted a profit of $US1.6 billion for the first quarter, a rise of 19 percent over that quarter last year.

Intel has posted a profit of $US1.6 billion for the first quarter, a rise of 19 per cent over that quarter last year, thanks to reduced personnel costs after recent layoffs and a $300 million tax reversal.

It reported $US8.9 billion in revenue for the quarter ending March 31, a drop of 1 per cent from that period last year and narrowly below the average Wall Street expectation of $US9 billion, according to analysts polled by Thomson Financial.

Intel reported earnings per share of $0.27, an increase of 17 per cent over its performance in the first quarter of 2006 and well above the average analyst forecast of $0.22 per share. However, the company reported that the tax reversal inflated its earnings figure by $0.05, so Intel would have matched the forecast exactly without that charge.

Under the strain of a price war with competitor, AMD, Intel said it had a decline in microprocessor unit sales and selling prices compared to the fourth quarter of 2006.

Prices for the new Core microarchitecture chip family held up well in a very competitive environment, CEO, Paul Otellini, said. Still, much of the company's profit came from cost reductions, since Intel was one-quarter ahead of schedule in reducing its workforce from 102,000 to 92,000.

Those same factors would push Intel to collect forecasted second quarter revenue of $US8.2 billion to $US8.8 billion, CFO, Andy Bryant, said in a conference call. The midpoint of that range would mark a decrease of four per cent from the first quarter but an increase of six per cent year over year, he said.

Bryant credited the company's first quarter success to spending cuts made in its corporate reorganization. Intel cut spending by 17 per cent in its research and development as well as its management and accounting budgets for the first quarter, and plans to hold that number flat through the second quarter at a range of $US2.6 billion to $US2.7 billion.

Intel also expected a rise in its mobile segment revenues next quarter, thanks to the planned May launch of its Santa Rosa next-generation Centrino laptop platform, Otellini said. The company had already started shipping that bundle of processor, chipset and wireless components to PC vendors so it could build new notebooks around it. The official name for those products will be Centrino Duo for the consumer version and Centrino Pro for the business version. This included elements of Intel's vPro desktop IT management platform, he said.

In fact, Intel might have drawn better revenue this quarter if some customers had not postponed buying new notebook PCs until the Santa Rosa launch, one analyst said.

"We believe both sluggish PC unit growth and pricing actions to protect/gain share will weigh on near-term results. We also believe the notebook market was less than seasonal ahead of the Santa Rosa platform launch," an analyst with American Technology Research, Doug Freedman, said in a report.

However, Intel would soon begin to enjoy the fruits of its competition with AMD, he said.

"At this point we can not call an end to the price war [with AMD] that has been draining profits from the microprocessor market. Looking further out, we believe Intel's recent share gains and pending product launches will help the company command better [average selling prices] and margins in the back half of this year," said Freedman.

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Ben Ames

IDG News Service
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