Intel’s Earnings Fall 39%: Drop Blamed on Fierce Competition With AMD and Sharp Price Cutting

By Clint Swett, The Sacramento Bee, Calif.

Jan. 17–Hammered by fierce competition from archrival Advanced Micro Devices Inc., Intel Corp. on Tuesday said its net income in the fourth quarter plunged 39 percent from a year earlier while revenue dipped 5 percent.

The results were slightly better than Intel had forecast earlier in the quarter, and the earnings per share of 26 cents beat analysts’ expectations by a penny.

For the quarter, Intel earned $1.5 billion on sales of $9.7 billion, compared with profits of $2.45 billion on sales of $10.2 billion a year earlier.

Many of Intel’s woes can be traced to competition from AMD, which has poached Intel customers with a combination of powerful chips and lower prices. That forced Santa Clara-based Intel to slash prices, especially in the first half of 2006, said Nathan Brookwood, an analyst with Insight 64 in Saratoga. But in the second half of the year, Intel introduced 40 new products to be more competitive with Sunnyvale-based AMD and could be poised for a better year.

“We have our products in the marketplace. … Now we just have to execute,” said Andy Bryant, Intel’s chief financial officer in a conference call with analysts and reporters.

In addition to a slew of new offerings, Intel embarked on a major cost-cutting initiative resulting in the elimination of some 8,400 jobs, including more than 500 at its Folsom campus.

Bryant said Tuesday that the company expects to trim another 2,000 jobs by midyear and to realize $2 billion in cost savings from the cuts and other efficiencies this year.

“They’ve been getting down to fighting weight,” Brookwood said. Going into 2007, Intel is much better positioned than they were going into 2006.”

For all of 2006, Intel earned $5 billion, or 86 cents a share, on revenue of $35.4 billion. That’s down from 2005, when the company posted profits of $8.7 billion, or $1.40 a share, on revenue of $38.8 billion.

Wall Street reacted mildly to Intel’s report, which was released after the close of the market. The stock, which closed up 17 cents on the Nasdaq Stock Market, fell 93 cents to $21.36 in after-hours trading.

Intel’s strongest showing was in its mobility group, which makes chips for laptop computers. Operating income from that division climbed 5.3 percent in the quarter to $1.63 billion.

Company Chief Executive Paul Otellini said he hoped the introduction of Microsoft’s new Vista operating system at the end of this month would help boost notebook sales, especially among consumers.

Lagging badly in the results was the flash memory division, which posted an operating loss of $186 million, up from a loss of $12 million a year earlier.

That unit, which has been rumored to be near a sale, employs more than 300 workers in Folsom. About 7,000 people work at that campus now.

Published reports this week said Intel’s NOR flash business, which makes chips used in cell phones, would be sold to a private investment group.

Intel has refused to comment on a possible sale, and on Tuesday, Bryant said the company is focused on reversing the flash losses. “There is no question the team is dedicated to turning this thing around,” he said, adding that if no improvement is seen, the company would explore other options.

Mark DeVoss, an analyst with iSuppli Corp. in Silicon Valley, said it wouldn’t surprise him if Intel sold off its NOR unit. “NOR has been a rough business for everyone,” he said. “I think selling it makes sense for Intel.”

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Copyright (c) 2007, The Sacramento Bee, Calif.

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