Intel Corp has posted a 35% slide in third-quarter profits on lower revenue, but beat its own and Wall Street’s estimates. The chipmaker promised better times ahead, citing a raft of new products and a let up in the industry’s crippling pricing wars.
Intel recently shed thousands of workers and a few non-core business units, in its pursuit to become a leaner competitor against its smaller rival Advanced Micro Devices Inc, which continues to nibble away at its market share.
Yesterday, Intel chief executive Paul Otellini claimed Intel had regained some market share from AMD. By setting an all-time record in unit shipments of server microprocessors, we did gain some share there, he said on the call.
But he did not reference Intel also posting record unit shipments of notebook microprocessors in relation to gains in market share, which may suggest AMD still has its competitive hooks in.
Still, the blooding pricing battle between Intel and AMD that has handicapped both companies’ bottom lines during the past 18 months was easing up, according to Intel. The difference now is Intel can differentiate its products with newer technology rather than price, Otellini said.
During the past few months, the chipmaker has launched an entire new product line across all its major markets, and more than half of its microprocessors are now being made using the smaller 65-nanometer manufacturing technology, he noted.
Price wars tend to happen in the brown banana product segments, Otellini said. You sell the best products first, he later added. That as not changed in the past two decades in the industry.
The company had seen some level of [price] firming based on new products, confirmed Intel CFO Andy Bryant, who also was on the call. While pricing in the second quarter was worse than in the third, Bryant said, pricing in the third quarter would likely be worse than the fourth.
Record unit shipments on server and notebook microprocessors, two of the fastest-growing segments of the market, according to Otellini, helped Intel post third-quarter revenue of $8.7bn. This was 12% lower than a year ago, but slightly more than the $8.6bn pegged by analysts, according to Thomson/First Call.
Still, it was nearly a year ago, during the fourth quarter last year, that the company posted its highest-ever quarterly shipments of microprocessors. Chief executive Paul Otellini said he hadn’t yet calculated whether the company was on track to beat that during the current quarter. Even if he had, he told analysts on a conference call that he wouldn’t divulge such information anyway.
Santa Clara, California-based Intel posted a $1.3bn profit, or 22 cents per share. Operating income, excluding the costs of share-based compensation, came in at $1.7bn, or 27 cents, beyond Wall Street’s target of 18 cents.
Looking ahead, Intel said it likely would see sales of between $9.1bn and $9.7bn during the current quarter, in line with analysts’ targets of $9.5bn.
Helping the company’s optimism for the fourth quarter is the success of customer Apple Computer Inc, according to Otellini. I think you’ll be happy there, he said with regard to Apple, which reports its earnings today.
Otellini does not expect huge enterprise traction for Microsoft Corp’s forthcoming Vista operating system during the current quarter, when the OS is slated for release.
From an IT perspective, I think Vista is going to be not something people are waiting for, he said. On the other hand, you will see it instantaneously adopted in the consumer market.
Yet a luke-warm reception to Vista from businesses is not likely to dampen Intel’s fourth quarter because it has been so many years since a new Windows OS release that it is not factored into seasonal demand, he added.
During the most recent quarter, overall revenue was up in Europe and the US, but slightly slower than seasonal in Asia Pacific. This was largely because a much higher percentage of desktops are sold in the region versus notebooks, and Intel saw the biggest price drops in desktops, Otellini said. There also was some inventory overhang there, he said.
However, the mobile microprocessor segment overall continues to take client PC share, Otellini said.
When pressed, Otellini said AMD’s $5.4bn acquisition of graphics chipset maker ATI Technologies Inc, in late July, did not have a significant change on Intel’s own chipset strategy.
Following Intel’s rather acute shortage of chipsets earlier in the year, Otellini said the company had made capacity changes to ensure it was handling a larger chunk of chipsets itself. But whether ATI would continue to supply discreet graphic chipsets to Intel remains to be seen, he said, noting that ATI’s chief rival Nvidia Corp would likely continue to supply both AMD and Intel.
When asked if Otellini had any thoughts of Intel taking another shot at making discreet chipsets itself, Otellini responded, Oh, there’s always thoughts. If you’re asking plans I really can’t comment.
Intel shares lost more than 3% of their value before the earnings announcement, and recovered 1% to $21.11 in after-hours trading on the Nasdaq.