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Intel Shares Fall on 3Q Earnings Report

Posted on: Wednesday, 19 October 2005, 18:00 CDT

By MAY WONG

SAN JOSE, Calif. - Shares of Intel Corp. fell Wednesday after the chip maker posted a slim 5 percent increase in third-quarter profits and indicated fourth-quarter sales could be affected by continuing supply constraints and a buildup of customer inventory.

In early trading on the Nasdaq Stock Market, shares of Intel fell 3 cents to close at $23.69. The stock has traded in a 52-week range between $20.73 and $28.84.

Intel, which reported its results Tuesday after financial markets closed, said strong demand for notebook computers powered by Intel's microprocessors helped the world's largest chipmaker post record revenue for the third quarter and is expected to push fourth-quarter sales above the $10 billion mark, in line with analysts' predictions.

In the three months ended Oct. 1, Intel earned $2 billion, or 32 cents per share, compared with $1.91 billion, or 30 cents a share, in the same period a year ago.

Revenue rose 18 percent to $9.96 billion compared with $8.47 billion in the year-ago period.

Intel said the latest results included an increase in taxes of about $250 million and the payment of $140 million to MicroUnity Inc. as part of a $300 million settlement in a patent infringement case.

Analysts were expecting the chip maker to earn $2.1 billion, or 33 cents per share, on sales of $9.92 billion, according to a survey by Thomson Financial. In September, the Santa Clara-based company had tightened its revenue forecasts to between $9.8 billion and $10 billion.

Analyst Charlie Glavin of Needham & Co. said the Wall Street forecast did not take into account the 2-cents-a-share impact from the legal settlement. On that basis, Intel beat analysts' expectations by a penny.

Intel said it expects revenue in the fourth quarter to total between $10.2 billion and $10.8 billion, in line with analyst forecasts of about $10.6 billion.

The results and outlook would certainly have been stronger if Intel was able to produce enough chipsets to meet demand, analysts said.

Despite the supply constraint, the company said it shipped a record number of chipsets that control communication between the processor and the rest of the computer. Company officials expect the supply problem to continue into the fourth quarter and hopefully ease thereafter as the company adds production capacity.

As in recent quarters, Intel reported strong demand for its Centrino chips for wireless-enabled laptop computers. The chips, like the computers, carry a price premium over those built for desktop machines.

Overall, sales of notebook chips rose to $3.54 billion from $2.56 billion in the year-ago period, accounting for a third of the quarter's revenue.

Asia - especially China and India, but excluding Japan - was the segment leader in revenue growth, with sales in the region increasing by 28 percent compared to the year-ago quarter, Chief Financial Officer Andy Bryant told analysts during a conference call. The region accounted for 52 percent of Intel's revenue, compared to 19 percent generated from the Americas and 20 percent from Europe.

Shipments of flash memory, used primarily in cell phones, also set a record.

The company has been under pressure in the corporate server market from Advanced Micro Devices Inc., which beat Intel to market by six months with its high performance "dual-core" chips.

But Intel CEO Paul Otellini said he expects Intel's dual-core products to be a main driver of revenue growth for the fourth quarter. Since Intel launched the product line in September, it has shipped 1 million units, and the company expects to ship "millions" more in the fourth quarter, he said.

For the first nine months of the year, Intel earned $6.21 billion, or $1 per share, compared with $5.39 billion, or 82 cents per share in the same period in 2004. Nine-month sales grew to $28.63 billion from $24.61 billion last year.

Source: Associated Press/AP Online

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