Intel profit jumps 44 percent despite price war

Chip maker generates US$1.3 billion profit for the quarter

Intel has announced its quarterly profit rose 44 per cent over last year, reaching $US1.3 billion as low selling prices for its microprocessors were offset by higher than expected unit shipments.

The results came despite an ongoing price war as Intel and its rival, Advanced Micro Devices (AMD), struggle for larger shares of the processor market. Both companies have been cutting prices on their chips as they upgrade their products from standard chips to dual-core and quad-core processors.

Intel is also in the final stages of a corporate reorganisation that included the layoffs of thousands of workers in 2006. At least 1800 more layoffs are planned for August. The company incurred restructuring charges of $US82 million during the most recent quarter as it continued to adjust to the changes, Intel said.

Despite those challenges, Intel earned $US0.22 per share on revenue of $8.7 billion for the quarter ending June 30, beating Wall Street expectations that the company would earn $US0.19 per share on revenue of $US8.54 billion, according to analysts polled by Thomson Financial. Intel also beat its own mark from the second quarter of 2006, when it earned $US0.15 per share on revenue of $US8.01 billion.

One factor in Intel's favour this quarter was the May launch of its Santa Rosa upgrade to the popular Centrino notebook PC platform, Intel CEO, Paul Otellini, said. Intel bundled an improved processor, chipset and wireless card to maintain its large share of the fast-growing notebook market segment.

Intel also saw strong sales for its quad-core Xeon server chips, although it suffered from competitive market prices in low-end consumer PC sales, Otellini said. Intel also had mixed results in flash memory chips, where it generated strong revenue from NAND chips but NOR flash chip sales were weaker than expected.

Those flash memory results helped to push Intel's gross margin down to 46.9 per cent for the quarter, lower than the company's goal of 48 per cent, Intel chief financial officer, Andy Bryant, said.

He predicted the company would quickly rebound in the third quarter, forecasting a gross margin of 52 per cent and revenue between $US9.0 billion and $US9.6 billion. If Intel met the top end of that goal, it would match the Wall Street estimate of $US9.36 billion and would beat its own revenue mark of $US8.74 billion for the third quarter last year.

First, Intel faces some tough challenges in the rest of 2007, because it plans to launch its new Penryn desktop chip design just as AMD launches a comparable Phenom chip. Both products will reach PC vendors during a tough time in the semiconductor market.

In May, the analyst firm, Gartner, cut its 2007 revenue growth forecast for the semiconductor market to 2.5 per cent from an original estimate of 6.4 per cent growth over 2006 levels. Gartner assigned part of the blame to the price war between Intel and AMD, as well as to plunging prices for DRAM (dynamic RAM) memory chips.

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Ben Ames

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