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Intel says chip sales on target

The chipmaker issues a midquarter update stating that its third-quarter revenue will be within previous estimates, but edging toward the low end of that range.

Intel announced Thursday that chip sales are on track for the current quarter, after an extremely rocky first half of the year, although the final results still hinge on what happens in September.

The Santa Clara, Calif.-based chipmaker issued a midquarter update stating that revenue for the third quarter will be within previously stated estimates of $6.2 billion to $6.8 billion but will fall "slightly below the midpoint of the range," said Andy Bryant, Intel's chief financial officer. The midpoint is $6.5 billion.

Expenses will be lower than expectations and will come to approximately $2 billion to $2.1 billion, rather than $2.1 billion to $2.2 billion. The company will also see a $90 million loss in investments rather than break even. Further, the company lowered tax estimates by $100 million.

"The microprocessor business continues to follow seasonal patterns," said Bryant. Excepting the third quarter of 2000, the current period "looks exactly like the last three or four years," he added.

Manufacturing costs didn't drop as much as the company hoped, but cost reduction efforts will continue. "We went to the factories and said, 'Reduce costs by hundreds of millions of dollars.' They did about 80 percent of it," Bryant said.

During the company's second-quarter earnings conference call in mid-July, Bryant had said that third-quarter revenue should remain the same or improve slightly. At that time, the company predicted third-quarter revenue of $6.2 billion to $6.8 billion, compared with second-quarter revenue of $6.3 billion.

The midquarter report should give some reassurance to beleaguered PC makers. Because Intel provides the majority of processors to those manufacturers, its sales serve as a bellwether for the PC industry.

Still, the quarter will depend on the next 25 days, Bryant said. Unlike other quarters, in which sales are fairly evenly dispersed over a 13-week period, the bulk of third-quarter sales occur in September, and more specifically the last two weeks of the month, according to several analysts and Bryant.

If the sales trends established within July and August continue, the quarter could turn out slightly better than expected, said Bryant. PC manfacturers, however, still have time to cancel current orders.

"September is the swing month," said Bryant. "There is still risk in there, but to tell you the truth, with the sales that we saw in July and August, we are as comfortable as we could be."

Last September, Intel roiled the industry when it announced that revenue for the third quarter of 2000 would be lower than expected due to sluggish demand in Europe. Warnings from Gateway, Apple Computer and other PC companies followed soon after, and demand melted.

Since then, Intel has had to lower expectations more than once. During the second-quarter call, however, the company indicated that the market appeared to be returning to seasonal patterns, although sales remain lower than in previous years.

"We are confident that Intel architecture business has returned to seasonal patterns," Bryant said at the time. Intel expects "seasonal growth in unit volumes" and revenues, he said.

At the time, Intel also reaffirmed that it was accelerating adoption of the Pentium 4 through price cuts and manufacturing gains. By the end of the year, the Pentium 4 will displace the Pentium III in nearly all desktop PCs, according to Intel executives.

In the ensuing weeks, company executives have vaguely affirmed Bryant's forecast. Intel also has accelerated the release of faster Pentium 4 chips.

Before Thursday's announcement, analysts polled by First Call estimated that Intel would earn an average of 10 cents a share on revenue of $6.4 billion. For the fourth quarter, First Call predicts Intel earnings will climb to 12 cents on revenue of $7 billion. Meanwhile, the chipmaker is expected to post earnings per share of 50 cents and revenue of $26.4 billion for the year.

In other markets, sales of networking and communications chips continue to sink.