Business | Technology
Intel sees more hard times ahead in 2009
Intel Corp appears to be playing it safe with an ugly first-quarter forecast.
- AP
- Published: 00:30 January 24, 2009
- Image Credit: AP
- Notebook computers equipped with Intel technology on display at the International Consumer Electronics Show in early January in Las Vegas.
San Jose, California: Intel Corp appears to be playing it safe with an ugly first-quarter forecast.
The chip maker reported on Thursday that profit plunged 90 per cent and sales slipped 23 per cent during the last three months of the year, matching analysts' subdued estimates.
Wall Street was braced for the bad news: Intel had lowered its fourth-quarter guidance twice, including once just last week, warning that weaker-than-expected PC demand was hammering down demand for its microprocessors.
So what about 2009? Intel said it doesn't know when demand will pick back up, so the Santa Clara-based company set the bar low and offered first-quarter guidance at the low end of what analysts were expecting.
Intel said it 2009 sales will likely be around $7 billion (Dh25.7 billion), which translates to a decline of more than 25 per cent from the first quarter of 2008. Gross profit margin should also sink sharply, falling from more than 50 per cent of sales to the low-40 per cent range, it said.
Gross profit is a key measure of how well a company is controlling its costs, but falling demand, heavy investment in factory upgrades and big costs for running factories at less than full throttle will all take their toll on Intel's bottom line.
Intel said the financial crisis has made it so difficult to predict revenue that the company wouldn't offer a precise estimate. Analysts surveyed by Thomson Reuters were expecting $7.3 billion in sales, on average, but estimates ranged from $6.6 billion to as high as $9.3 billion.
The profit forecast was below many estimates, but was good enough to send Intel's shares up 3.8 per cent in after-hours trading.
"I don't think they're good numbers, but they're good numbers to start from," said Cody Acree, senior semiconductor analyst with Stifel, Nicolaus & Co. "We all knew they would be bad, and that they'd come down, but they've set a base to work from."
Intel's Chief Financial Officer Stacy Smith said in an interview that computer-makers' inventory levels fell in the fourth quarter and continued falling into the first quarter, which means they're not buying as many new chips. He said Intel's product lineup positions the company well to take advantage when demand starts rising again, but Smith cautioned that no one knows yet when that might be.
In the fourth quarter, Intel's net income was $234 million, or 4 cents per share, compared with $2.3 billion, or 38 cents per share, in the year-ago period.
Profits were squeezed by a freeze in information-technology spending and a shift toward low-margin processors for a class of little laptops known as "netbooks." A big reason for the severity of the fourth-quarter drop, though, was a $1 billion writedown of the value of Intel's investment in Internet provider Clearwire Corp. Clearwire specialises in a new type of wireless broadband technology called WiMax that Intel is building into its chips, and has stumbled on fears the credit crunch will derail its ambitious network buildout plans.
Intel's sales were $8.2 billion, a 23 per cent shortfall from last year.
For all of 2008, Intel earned $5.3 billion, 24 per cent lower than a year ago, on sales of $37.6 billion, a 2 per cent decline.
PC demand is sinking fast, which takes its toll on Intel because it owns 80 per cent of the market for microprocessors. Market research firms reported this week that PC sales growth in the fourth quarter was the worst it has been in six years, with the slump expected to drag out until possibly 2010.
Bobby Burleson, managing director of equity research for Canaccord Adams, called Intel's profit forecast disappointing, but said it likely indicates that Intel has "come clean with what sounds like a worst-case scenario for this year."
One area where Intel shines is controlling its manufacturing costs, where it enjoys a big advantage over smaller rival Advanced Micro Devices Inc.
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