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Intel says first-quarter sales on track

In its quarterly update, the company says sales of PC-related chips beat expectations, a potentially good sign for the PC business. Flash-memory sales, though, are disappointing.

Intel said Thursday that its first-quarter sales are on track with expectations, a potentially good sign for the PC business.

The Santa Clara, Calif., chipmaker, which updated analysts on its financial outlook for the quarter on Thursday afternoon, said sales of its processors and other PC-related chips are trending slightly better than expected, while sales of flash memory used in cellular phones and other electronics devices have been below expectations.

Intel expects to take in between $6.6 billion and $6.8 billion in revenue for the quarter, ending March 29. That prediction represents a narrowing of its January prediction for the quarter, which had revenue ranging from $6.5 billion to $7 billion.

"If you look at the first quarter, particularly in the processor space, it's a perfectly seasonal quarter. If you look inside the geographies, you won't find any surprises. If we hadn't seen the softness in flash, we could have said everything is up a bit and there are no surprises," said Andy Bryant, Intel's CFO, in a conference call to discuss the announcement with analysts.

The update, which Intel provides every quarter, didn't have analysts expecting fireworks. Instead, most believed the company would tighten down its expectations to the midpoint of the outlook it gave in January.

Prior to the update, analysts expected Intel to report a first-quarter profit of 12 cents per share on revenue of $6.75 billion, according to a poll published by FirstCall.

The only real surprise Intel has seen with the quarter, so far, has been the lower than anticipated flash sales. The lower sales are the result of a price increase of between 20 percent and 40 percent enacted by the company at the beginning of the quarter, Bryant said.

"We paid more than we expected to by following our instincts on prices," Bryant said. "We still think we're right. This would be the wrong time to give up?so we'll stay the course."

Bryant said that Intel has most likely lost market share in the flash market as a result of the price changes, even though market research data from the quarter is not yet available. The company believes that sales will come back if shipments of high-end PDAs and Cellular phones, which incorporate a lot of high-end flash chips, increase.

Some analysts believe competition from Advanced Micro Devices may have had something to do with Intel's flash problem. While Intel increased prices, AMD and others kept their flash prices the same, causing customers to shift away from Intel to get lower prices, Sumit Dhanda, an analyst with Banc of America, wrote in a report Wednesday.

If Intel winds up with excess flash memory inventory--particularly in the form of large numbers of low-end chips--the company may ultimately have to write it off. That decision has yet to be made, however, he indicated.

PC recovery?
Although flash-memory sales are lower than anticipated, the better-than-expected PC processor sales may be a good sign of things to come for the industry. Several manufacturers have said this year's first-quarter sales results have been especially difficult to predict because of economic uncertainty and war jitters among both consumers and businesses.

Dell Computer, for one, predicted a unit shipment decline of about 2 percent or 3 percent for its first fiscal 2004 quarter, which runs between February and April.

Intel's results may indicate a more optimistic scenario.

Intel's processor sales are trending toward a sequential decline of about 5 percent. That means they could reach the upper end of Intel's usual 5 percent to 10 percent first-quarter sequential decline, Bryant said.

The trend looks good, he said, but Bryant stopped short of declaring that a PC market recovery is afoot. "I don't look at what we see here and see signs of an economic recovery," Bryant said.

Later he said, "We haven't seen anything yet that we'd call a corporate recovery."

Should Intel's revenue come in at the middle of the range, $6.7 billion, it will represent a typical first quarter for the company, which usually sees its revenue decline in the mid-single digits from the fourth quarter to the following first quarter. Intel's processor shipments usually drop in the first quarter because PC sales to consumers cool off after the holidays and businesses pause and prepare for the coming year.