CNET también está disponible en español.

Ir a español

Don't show this again

Christmas Gift Guide
Tech Industry

Intel earnings off 29%

Intel reports a 29 percent reduction in earnings and sequentially flat revenues, but says that cost-cutting measures and new products should give the company a boost by next quarter.

Intel reported a 29 percent reduction in earnings and sequentially flat revenues yesterday, but said that cost-cutting measures and new products should give the company a boost by next quarter.

The chipmaker announced second-quarter revenues of $5.9 billion, compared to $6 billion a year ago as well as in the first quarter of 1998.

The bellwether's shares jumped 3.3125 to 84 in midmorning trading. More than 20 million shares traded hands, making it by far the most active Nasdaq stock market issue.

Intel reported second-quarter earnings of $1.2 billion, or 66 cents per share. The company fell slightly below Wall Street's previously lowered expectation of 68 cents per share, according to consensus estimates from First Call.

Wall Street's reaction to the earnings news was mixed. This morning, Bear Stearns raised its rating for Intel to "buy" from "neutral," while Salomon Smith Barney cut its rating to "outperform" from buy.

Intel's quarter in a nutshell
Unit shipments of microprocessors and chipsets were down in the second quarter from the first quarter of 1998, while motherboard unit shipments remained flat.

Intel reported gross margins of 49 percent, down 5 percentage points from the first quarter. Margins are expected to rise slightly in the third quarter of 1998 and are expected to remain at an average of 52 percent for the year.

R&D spending is expected to be approximately $2.8 billion for 1998, including the cost of acquisitions.

Unit shipments of networking connections, hubs, and switches improved significantly, while embedded processor and microcontroller unit shipments were down from the first quarter.

Intel expects to move to the 0.18 micron chipmaking process by Q2 1999, one quarter earlier than expected. This will help increase chip yields and allow for the introduction of newer, faster 32-bit processors.

Net income dropped off 29 percent from the same quarter a year ago and was also down 8 percent from the previous quarter. Intel's fiscal first quarter reflected a charge of $165 million related to the acquisition of Chips and Technologies, a graphics chip vendor.



More coverage on CNET Radio
 
Despite a difficult economic environment, the company "cut costs, extended the product line, and is ahead of schedule in using new manufacturing processes," said Dr. Craig Barrett, president and CEO, in a prepared statement. "As a result, we have increased Intel's competitiveness substantially."

Barrett himself succeeded Andy Grove as CEO in May.

Analysts say the oversupply in computers and Intel at a glance microprocessors that has impacted Intel's performance appears to be easing, which will clear the way for sales, at possibly higher prices, in the second half. (Intel is an investor in CNET: The Computer Network).

"A lot of the inventory correction is done," said Mark Edelstone, semiconductor analyst at Morgan Stanley in a previous interview.

Intel, on the other hand, today cautioned that there will be continual inventory adjustment as the industry attempts to become more efficient.

"I think [there is an] ongoing pressure downstream in terms of manufacturers and distributors to consistently improve their inventory and production models," said Paul Otellini, executive vice president with Intel, in a conference call. "I see this as being ongoing process as people continue to get closer to zero or minimal inventory," he noted.

Price cuts in June led to a surge in sales: Close to 50 percent of the chips in the quarter sold last month. The quarter-end blowout should also clear the decks for second-half sales gains, analysts have said.

Intel noted that it expects revenue growth for the third quarter to be flat or slightly up from the second quarter, and that second-half revenues will be greater than those from the first half of the year.Gross margins are also expected to rise next quarter.

So far, though, 1998 has not been a banner year for the processor giant. First-quarter sales slumped because of a slowdown in computer demand, leading the company to announce a reduction of 3,000 employees. Subsequently, Intel had to delay the release of its 64-bit Merced chip until 2000.

The company released its high-end Pentium II Xeon processor right at the end of the second quarter, but it had to postpone the release of a chipset that would allow computer vendors to make four-processor systems because of a bug. In addition, the company kicked off the current quarter by shutting down two chip fabrication facilities.

On the legal front, the company lost a major injunction in its suit against Intergraph while the Federal Trade Commission filed an antitrust action in June.

This year so far has also seen an acceleration in processor price reductions due to slowing demand and competition from companies such as Advanced Micro Devices.

Intel cut desktop processor prices three times in the first half, including once in June--the first time that the company has cut processor prices in the last month of a quarter. More cuts are scheduled for July, September, and October.

The chipmaker's stock closed down $1.69 to $80.69 per share.

NEWS.COM's Michael Kanellos and Reuters contributed to this report.