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Tech Titans Intel, IBM Cite Soft 4th-Quarter Revenue

Posted on: Wednesday, 18 January 2006, 06:00 CST

By Michelle Kessler

SAN FRANCISCO -- Tech giants Intel and IBM reported disappointing fourth-quarter revenue Tuesday, getting the corporate earnings season off to a dismal start.

Intel, the world's largest chipmaker, reported revenue of $10.2billion, below its own estimate of $10.4billion to $10.6billion. Its shares dropped 9.5% to $23.10 in after-hours trading on the news, released after the market's close.

IBM, which sells everything from computer components to consulting services, reported revenue of $24.4billion. That was well below the $25.5billion Wall Street analysts on average had expected. After hours, IBM shares were unchanged at $83.

The weak sales are an ominous sign for the tech industry, which has spent three years clawing its way back from the dot-com bust. But tech analysts say that some of the shortfall came from operational problems at the companies instead of a massive slowdown.

"The PC environment is generally pretty healthy," says equity analyst Richard Whittington with Caris & Co.

But it didn't seem that way to Intel, at least in the last few weeks in the quarter. That's when revenue tumbled, CEO Paul Otellini said. He blamed product shortages, falling prices and weakening demand. Despite that, Intel's net income of $2.5billion, or 40 cents a share, rose from $2.1billion, or 33 cents a share, a year ago. But Intel's profit margin was 61.8%, less than its estimate of 63%.

Blame rival Advanced Micro Devices, Whittington says. "AMD is widely perceived to have better-quality products. They're forcing Intel to lower its prices."

In the current quarter, Intel expects revenue of $9.1 billion to $9.7 billion. While the first quarter is typically slower than the fourth, that's a greater decline than usual, says equity analyst Ashok Kumar at Raymond James. That's troublesome, especially as Intel and AMD are building more chip factories, he says.

Intel also said it would stop releasing midquarter earnings updates -- the numbers it missed so badly Tuesday. Instead, the chipmaker will provide more information during quarterly reports.

IBM at least had some good news. Net income of $3.2billion, or $1.99 a share, rose from $2.8billion, or $1.67 a share, a year ago. That was more than analysts had expected. (The results include a $267million charge related to IBM's decision to discontinue its pension plan.)

The company achieved the strong profit despite unfavorable fluctuations in currency exchange rates, says equity analyst Richard Petersen at Pacific Crest Securities. Those fluctuations might help explain why revenue was lower than Wall Street expectations, he says.

Another good sign: IBM boosted profit in its consulting division. Sales of big, back-office computers were strong. IBM CFO Mark Loughridge says the company is healthy, despite the revenue weakness. "Each segment contributed solid profit growth," he said.

(c) Copyright 2005 USA TODAY, a division of Gannett Co. Inc.

Source: USA TODAY

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