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Intel profit falls 39%

Chip maker survived 'challenging year,' Otellini says

By Ben Ames
January 17, 2007 12:00 PM ET

IDG News Service - 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

Reprinted with permission from Story copyright 2014 International Data Group. All rights reserved.
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