Intel, the world's leading maker of computer chips, reported a second-quarter profit that was slightly better than the disaster Wall Street had expected, although the results were much worse than last year.
In the three-month period ended 30 June, Intel reported net income, excluding acquisition-related costs, of $854m, or 12 cents a share. This represents a 76 per cent decline in profit from a year ago. Analysts polled by First Call expected 10 cents a share.
If the acquisition costs are included, Intel's net income was $196m, down a whopping 94 per cent from last year's $3.1bn. Sales were $6.3bn in the second quarter, down 22 per cent from 2000's second-quarter total of $8.3bn.
The company said that the microprocessor business performed better than expected, but that sales of communications and flash memory chips were soft. Going forward, Intel still sees light at the end of the tunnel.
"As we look ahead to 2001, we're comfortable that the Intel architecture business has returned to seasonal patterns and will show more strength in the second half. Our other businesses remain soft," said chief financial officer Andy Bryant in a conference call.
Intel expects its gross margin in the third quarter to slip to 47 per cent, attributing the decline primarily to increased costs as it accelerates manufacturing of its high-end Pentium 4 processors in the second half.
Eric Rothdeutsch, a chip analyst at Robertson Stephens, said the pressure on the stock is probably the result of concerns about gross margins. "Margins will be coming under pressure as the Pentium 4 has not been ready for prime time and there has been overall weak demand in the PC market which has been pulling margins down."
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.
Intel's microprocessor shipments rose from the first quarter, although the average selling price declined. Gross margins for the year are expected to be around 49 per cent, down slightly from a previous forecast of 50 per cent.
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