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Intel Profit Weaker Than Expected on Soft Processor Demand

By Reuters
Published | Updated

SAN FRANCISCO – Intel Corp. (INTC) Tuesday posted a 25 percent jump in quarterly profit, below expectations, as the world's top chipmaker saw weak demand for processors used in desktop computers, sending its stock lower.

Intel, which makes the microprocessors that drive some 90 percent of the world's personal computers, said net profit for the fourth quarter was $2.5 billion, or 40 cents per share, up from $2.1 billion, or 33 cents per share, a year earlier. Revenues were $10.2 billion, up 6 percent from $9.6 billion a year earlier.

Analysts had expected a profit of 43 cents per share on revenue of $10.56 billion, according to Reuters Estimates.

"It looks like a miss on desktop with revenue in the Americas down 3.5 percent sequentially. That's unusual. Certainly this is a miss," said Hans Mosesmann, Moors & Cabot Capital Markets.

Intel said last month it was benefiting from rapid sales of laptops, the fastest-growing segment of the computer market, but that a shortage of chipsets — the cluster of chips and interfaces that surround a processor — was hitting revenue growth.

The Santa Clara, California-based company has also been losing some market share to rival Advanced Micro Devices Inc (AMD).

Intel shares have risen about 13 percent over the past year, while AMD's have more than doubled.

Intel said that for the first quarter, it expected revenue of between $9.1 billion and $9.7 billion, below a Wall Street consensus estimate of just over $10 billion.

Intel shares fell in extended trading to $23.94 shortly after the results were announced, down 7 percent from its Nasdaq close of $25.52.

The stock has risen about 13 percent over the past year, and is valued at about 16 times its estimated 2006 profit, compared with about 36 times for AMD.

Analysts have said Intel is positioned for a strong 2006 as it rolls out powerful new chips for laptop computers and throws its marketing muscle behind a program to turn PCs into home entertainment centers.

"Although we fell below our expectations for the fourth quarter, we enter 2006 with exciting new products," Intel Chief Executive Paul Otellini said in a statement.

Intel said gross margins in the fourth quarter were 61.8 percent, compared with 59.7 percent for the third quarter and below the company's forecast of 63 percent. It said the weakness was due primarily to the softer-than-expected sales.