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Intel misses earnings, cuts 4,000 jobs

The chipmaker reports lower-than-expected quarterly earnings and says it will eliminate about 4,000 jobs this year as the slowdown in technology spending lingers on.

Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
Michael Kanellos
3 min read
Intel reported lower-than-expected quarterly earnings Tuesday and said it will eliminate about 4,000 jobs this year as the slowdown in technology spending lingers on.

The Santa Clara, Calif.-based chipmaking giant reported net income of $446 million, or 7 cents in earnings per share, on revenue of $6.3 billion for the quarter ending June 30. Excluding acquisition charges, earnings came to 9 cents a share and a little more than 10 cents a share excluding all one-time costs, said Andy Bryant, Intel's chief financial officer.

"We expect to see a seasonal increase but we have tempered our expectations for the year," he said. "We have yet to see momentum for the economic recovery in our business."

While the revenue figure was within lowered projections from the company, analysts expected the company to report earnings of 11 cents a share excluding costs, according to First Call.

To cut costs, the company will trim its work force by approximately 4,000 employees in the second half of 2002, many through attrition, the company said. Intel currently employs 83,000. Last year, it cut approximately 6,000 positions.

Additionally, it will cut capital spending to between $5 billion to $5.2 billion. Earlier, the company said it would spend $5.5 billion on plants and equipment this year. Gross margin came to 47 percent, but would have been 48.7 percent without the charges to wind down the online division.

The company lowered its second-quarter revenue projections in June due to lackluster demand for desktops in Europe and a shift in buying worldwide from Pentium 4 chips to Celerons. Revenue would come in at between $6.2 billion to $6.5 billion, rather than between $6.4 billion to $7 billion, it said at the time.

"We are lower in Europe than we anticipated. We thought Europe would be a little stronger in the quarter," Bryant said.

Additionally, Intel said its gross margins would fall during the quarter. The chipmaker said its second-quarter gross margins would be 49 percent, give or take a few points, compared with its previous expectation of 53 percent. Profits would also be impacted by a $100 million charge to wind down its online service division.

The PC market appeared to be slightly on the mend in the first part of the year. In April, Intel turned in a first-quarter profit of 15 cents per share, excluding charges, on revenue of $6.8 billion, better than expected. Cost cutting measures through more efficient manufacturing were also reaping greater benefits than expected.

But subsequently, computer sales began to tumble. U.S. consumer PC sales dropped 22.5 percent, compared to the year before, and May wasn't much better. A resurgence in corporate buying, predicted since 2001, also failed to materialize. Analysts and company executives also began to voice doubts about any potential sales bump for the back-to-school season or the fourth quarter, traditionally the busiest times of the year.

In the first week of June, Intel, Apple and AMD all warned of lower-than-expected revenues. AMD then later followed it up with a second warning lowering projections even further.

While the company predicted that revenues would grow in the second half of 2002, it gave a conservative estimate. Revenues for the third quarter will come to $6.3 billion to $6.9 billion, which would represent growth of zero percent to 10 percent. Typically, revenue jumps 10 percent to 12 percent from the second to the third quarter, said Ashok Kumar, an analyst with Piper Jaffray.

Cutting the work force may not provide the tonic Intel needs. Consumers are buying cheaper computers, and the company's foray into the communications market is stalled by a prolong downturn in telecommuncations equipment spending. At the same time, the need to invest in capital equipment, while slightly decreasing, remains high.

"I'm not sure how much they can fix by cutting people's heads off," said Joe Osha, an analyst at Merrill Lynch.

Geographically, sales looked similar to last quarter. Asia-Pacific remained the most active geographic market, accounting for 38 percent of revenue, compared with 31 percent a year ago, while the U.S declined to 35 percent of revenue from 37 percent a year ago. Sales in Japan and Europe declined.

The picture for the different business groups also looked the same. The Intel Architecture Group, which is responsible for making computer processors and chipsets, accounted for most of the revenue, $5.2 billion for the quarter, and all of the profits. The communications group and wireless computing groups continued to sustain losses.