Chips are down for Intel

Intel's profits crashed 76 per cent for the three months to the end of June, thanks to a price war, a slowing economy and a declining PC market. But the figures were better than analysts had expected, given the current market conditions.

The chipmaker made profits of $854m for the period, down from $3.5bn a year ago, on revenues of $6.3bn, 24 per cent below last year and five per cent lower than the first three months of the year. Intel expects revenues for the next three months to be between $6.2bn and $6.8bn.

The company has been embroiled in a price war with its main rival, Advanced Micro Devices, since early this year, against a background of falling demand for PCs. Researchers estimate that sales are around five per cent down on last year.

Jonathan Joseph, an analyst at Salomon Smith Barney, commented: "[Intel] had a pretty positive outlook, all things considered, for the third quarter so I'm actually very encouraged by the report."

Eric Ross, senior analyst at Thomas Weisel Partners, agreed that Intel's figures were surprisingly good but said he did not see how the company could maintain its margins as it made the transition from Pentium 3 to Pentium 4, which costs significantly more to manufacture.

Craig Barrett, chief executive at Intel, said it planned to "aggressively ramp the Pentium 4 processor into all mainstream price points by the end of the year". Intel is pinning its hopes on the rapid adoption of Pentium 4, and is making further price cuts on Tuesday to try and stimulate the flat market.

The chipmaker is trying to spend its way out of the market slump through massive investments in new manufacturing techniques that could cut production costs by 30 per cent. However, should the market not pick up as expected, Intel may create a chip glut.