Intel results slump; chip maker gives no guidance on future

CEO Otellini says PC market showing signs of recovery, but vendor avoids financial forecasts

Intel Corp. on Tuesday reported a sharp drop in revenue and profits for this year's first quarter, but CEO Paul Otellini claimed that the PC industry is showing signs of recovery.

"We believe that PC sales bottomed out during the first quarter and that the industry is returning to normal seasonal patterns," Otellini said in a statement.

However, the chip maker didn't provide any guidance for future quarters, citing continued uncertainty about the economy. The lack of a financial forecast helped to drive down the price of many technology stocks in trading on Wall Street this morning.

Revenue for the quarter ended March 28 totaled $7.1 billion, Intel reported. That was down 26% from last year's first quarter but still slightly ahead of analyst estimates, according to financial data provider Thomson Reuters.

Net income was $647 million, down 55% year over year, with earnings per share of 11 cents. That also was ahead of expectations; on average, analysts had predicted earnings of just 3 cents per share. Intel said some restructuring and asset-impairment charges had been lower than expected.

After riding a surge in the popularity of netbooks, Intel saw revenue from its Atom processors and chip sets drop sharply on a sequential basis. Atom sales fell 27% from the business level in last year's fourth quarter, to $219 million, the company said.

In his statement, Otellini said Intel has seen trends in the PC market that show order patterns returning to normal levels. Desktop sales bottomed out first and then recovered in early February, he said, adding that Intel's inventory of desktop chips wasn't excessive and was cleared out quickly.

In contrast, it took a longer time for consumer laptop demand to reach normal levels because the backlog there was much larger, according to Otellini. Revenue from netbook chips was also stymied as a result of excess inventory, he said. But that inventory has now been cleared, and Atom sales should return to growth mode, he added.

Demand for enterprise laptops slowed during the quarter because of reduced corporate spending in response to constrained IT budgets, Otellini said. However, he predicted that demand could increase as the end of the usual three-year upgrade cycle for PCs approaches at many companies.

Despite Otellini's rosy view of the PC market, John Spooner, an analyst at Technology Business Research Inc., saw some negatives.

Intel will face challenges as it tries to grow its revenue and maintain profitability this year, Spooner wrote in a research note. He said PC buyers looking to save money during the recession may choose systems with lower-priced chips such Atom and Intel's Celeron processor, which could result in thinner margins for the company.

"The new realities of the market will exert considerable pressure on Intel's processor average selling prices as end customers, both businesses and consumers, look for the greatest bang for the buck when ... they move to purchase new PCs," Spooner wrote.

Otellini claimed that Intel has adapted well to the recession through "disciplined execution and agility." The company launched its Xeon 3500 and 5500 server chips, code-named Nehalem EP, during the first quarter, as well as new Atom devices. Intel also revised its manufacturing road map, saying it would invest $7 billion to make a faster shift to 32-nanometer production.

The Xeon chip launch provided the single largest increase in server performance that Intel has ever delivered, Otellini said, adding that more than 230 server designs from hardware vendors are now ready to ship. Intel itself expects to ship its 1 millionth chip based on the Nehalem microarchecture this week, he noted.

Copyright © 2009 IDG Communications, Inc.

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