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Intel confirms slow growth

Intel's chief financial officer confirms that the chip giant is experiencing a slow growth rate and that its flash memory investment didn't pay off.

Intel's (INTC) chief financial officer today confirmed once again that the chip giant is experiencing a slow growth rate.

In a company presentation delivered at the NationsBanc Montgomery Securities 15th annual Technology Week conference, Andy Bryant said Intel's gross margins will be down a few points from the 58.6 percent projected for components in 1998. He reiterated that Intel's first quarter would see flat revenue growth and lower profit margins--in the 55 percent range--and laid out a roadmap for the company in 1998.

He added that Intel's expenses are expected to be down approximately 2 percent to 5 percent from fourth-quarter figures of $1.4 billion, though research and development expenditures will be maintained at the $2.8 billion level reported during the quarter.

"Research and development is the only spending that has never declined from year to year," Bryant said. "We are a technology company, and we will continue to invest heavily in research and development. We are betting on the future and we believe the growth rate will continue to support that."

"We have to match the capability of our customer...multiple products across multiple segments," Bryant said.

He also addressed the return the company has seen on its investment in flash memory. He said that, overall, he has been happy with the results, but said today in particular he is disappointed with the product's outcome.

"No, I'm not satisfied today, but I think we can recover and get back where we want to be. We have the market share and we have the technological capability," said Bryant. "Would I put my money in it today? I don't know. Intel is convinced that we have to compete in more than just microprocessors. We have a lot of factories that have finished being microprocessor factories that still have a tremendous value."

On the Pentium II front, however, Bryant had nothing but good things to say. He pointed out that Intel's latest microprocessor is a successful product, and said it will become an increasingly significant part of Intel's future shipments.

"I have read that [the Pentium II] has this problem and that problem, but it is the fastest-ramping product we have ever had," Bryant said, adding that by mid-1998, 50 percent of the company's shipments will be of Pentium IIs, and that the Pentium II will be in all market segments.

The company's strategy to push the Pentium II into all segments has encouraged some investors to increase their stake in the company's stock.

Marc Wesseling, of Optimix Asset Management, said Intel's decision to get the Pentium II into all segments, from the sub-$1000 arena to that of high-end PCs, "makes me feel better about the company's ability to meet the numbers."

The company's stated goal for the Pentium II processor for 1998 is for the product to represent 50 percent of volume by mid-year. Intel also wants to ship 450-MHz processors before the second half of the year, and get Pentium II processors in mobile computers before the first half of 1998 is over. The Pentium with MMX will continue to ship by year's end, but by the fourth quarter, it will be aimed mostly at the mobile computing area, Bryant said.

Intel's stock took a hammering after the company announced that its first-quarter earnings for the year would be flat.

The chip giant has seen relatively flat sequential revenue growth for the past four quarters, and posted fourth-quarter revenues of $6.5 billion, up slightly from $6.4 million a year ago. The company's net income fell to $1.7 billion, down from $1.9 billion a year ago.