Intel profit falls 39%

Chip maker survived 'challenging year,' Otellini says

Still reeling from the effects of a corporate reorganization that included heavy layoffs, Intel Corp. reported a profit of $1.5 billion for the fourth quarter, down 39% compared with that period last year.

The company posted quarterly earnings of  26 cents per share on revenue of $9.7 billion. That revenue was down 5% from the same quarter last year but came in just above Wall Street estimates of 25 cents per share and $9.44 billion in revenue, according to analysts polled by Thomson First Call. However, Intel said its earnings were inflated by about a penny 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 Ltd. and the layoffs of 10,500 workers.

Intel lost significant market share to rival Advanced Micro Devices Inc. over the year, but some observers said the company rebounded in recent months with the launch of new chips, including the Core 2 Duo and quad-core Xeon chips.

Intel 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 statement (PDF format). 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 with 2005. Intel reported an annual profit of $5 billion, which was 42% below its number last year.

For fiscal 2006, Intel posted revenue of $35.4 billion -- 9% less than fiscal 2005 -- and earnings of 86 cents per share -- 39% less than 2005. The figures were slightly higher than analysts' expectations of $35.13 billion annual revenue and 84 cents 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 $12.1 billion in 2005 to $9.3 billion in 2006. In fact, it reached only $5.7 billion.

Intel survived "a challenging year" in 2006, Otellini said during a conference call with investors. Even one of its bright spots -- strong sales of its new Core 2 Duo processor -- was offset by a greater market trend from desktop PCs to notebooks.

The company will produce better results in 2007, he said. The reorganization plan has already cut Intel's employee headcount from 102,500 in the middle of 2006 to 94,100 at the end of the year. Once the company is no longer paying the cost of those extra workers, it will reap greater profits from new technology launches, Otellini said.

Intel's most profitable events in 2007 will include the completion of its transition from 90-nanometer to 65-nanometer process geometry for manufacturing chips, the spread of quad-core processors through more of its product line and the launch of its "Santa Rosa" notebook platform, Otellini said. Santa Rosa is an update to Intel's Centrino bundle that offers improved graphics, the "Robson" design of supplementing hard drives with NAND flash, and a form of IEEE 802.11n wireless LAN capability.

Experts agreed that Otellini's strategy could make a difference.

"Going forward, TBR expects the company to see strong profitability improvements during the second half of 2007, when the company’s results are no longer dampened by restructuring charges," said Martin Kariithi, an analyst at Technology Business Research Inc., in a commentary. "The speed and ruthless efficiency of Intel’s cost-cutting program, coupled by the rapid new product introductions witnessed during the second half of 2006, are evidence of the company’s aggressive management style that was lacking during the chipmaker’s struggles in 2005."

This story, "Intel profit falls 39%" was originally published by IDG News Service .

Join the discussion
Be the first to comment on this article. Our Commenting Policies