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Intel’s Q4 profit plunges 90%, meets forecasts

Fri, 01/16/2009 - 7:15am
Jordan Robertson, AP Technology Writer

SAN JOSE, Calif. (AP) – Intel Corp.'s fourth-quarter profit plunged 90 percent but still met Wall Street's subdued expectations Thursday, as the chip maker was hurt by wheezing PC sales that have crimped demand for microprocessors. Sales slumped 23 percent, in line with Intel's previous guidance.

That was good enough to send Intel's shares up 3.8 percent in after-hours trading.

Net income was $234 million, or 4 cents per share, compared with $2.3 billion, or 38 cents per share, in the year-ago period.

The Santa Clara, Calif.-based company's profits are being squeezed by a freeze in information-technology spending and a shift toward low-margin processors for a class of little laptops known as "netbooks." A big reason for the severity of the fourth-quarter drop, though, was a $1 billion write-down of the value of Intel's investment in Internet provider Clearwire Corp.

Clearwire specializes in a new type of wireless broadband technology called WiMAX that Intel is building into its chips, and has stumbled on fears the credit crunch will derail its ambitious network build-out plans.

Intel's sales were $8.2 billion, a 23 percent shortfall from last year. Intel blunted the shock of the big declines by lowering its guidance twice, including an announcement just last week.

For all of 2008, Intel earned $5.3 billion, 24 percent lower than a year ago, on sales of $37.6 billion, a 2 percent decline.

PC demand is sinking fast, which takes its toll on Intel because Intel owns 80 percent of the market for microprocessors, the brains of personal computers. Market research firms IDC and Gartner Inc. reported this week that PC sales growth in the fourth quarter was the worst it's been in six years, with the slump expected to drag out until possibly 2010.

Intel's first-quarter forecast of around $7 billion in sales might have helped soothe some investors' nerves. The guidance was murky – Intel said it wouldn't give a precise estimate because of the economic uncertainty – but the figure was at the low end of what analysts were expecting.

Analysts surveyed by Thomson Reuters were expecting $7.3 billion, on average, but estimates ranged from $6.6 billion to as high as $9.3 billion.

"I don't think they're good numbers, but they're good numbers to start from," said Cody Acree, senior semiconductor analyst with Stifel, Nicolaus & Co. "We all knew they would be bad, and that they'd come down, but they've set a base to work from."

First-quarter profit will also suffer. Gross profit margin is expected to slip sharply from 53.1 percent of sales in the fourth quarter, to the low-40-percent-range in the first quarter. Two big reasons: Intel is racking up big bills to keep upgrading its factories – something it's famous for doing even in tough times – while it also absorbs hefty costs for running factories that aren't at full throttle because of weaker demand.

Bobby Burleson, managing director of equity research for Canaccord Adams, called the forecast disappointing but said it likely indicates that Intel has "come clean with what sounds like a worst-case scenario for this year."

Intel's Chief Financial Officer Stacy Smith said in an interview that computer makers' inventory levels fell in the fourth quarter and continued falling into the first quarter, which means they're not buying as many new chips. He said Intel's product lineup positions the company well to take advantage when demand starts rising again, but Smith cautioned that no one knows yet when that might be.

"It's very difficult to precisely call when we'll hit the bottom," he said.

One area where Intel shines is controlling its manufacturing costs, where it enjoys a big advantage over smaller rival Advanced Micro Devices Inc. Intel's quicker transition than AMD to 45-nanometer manufacturing technology, which shrinks the size of the chips' circuitry, has made each chip cheaper to produce. That has helped cushion the blow of falling sales.

AMD – which has lost billions of dollars over the past two years, recently changed CEOs and is spinning off its factories to save money – warned that its fourth-quarter sales will likely come in 33 percent lower than last year. AMD reports quarterly results Jan. 22.

During the regular trading session before the earnings report, Intel stock rose 21 cents, 1.6 percent, to close at $13.29. The shares hit $13.80 in after-hours trading.

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