Intel Shares Fall After Weak Q4 Earnings

Shares of Intel Corp. (INTC) plunged Wednesday after the chipmaker scaled back expectations for the new year and posted earnings and sales that missed Wall Street expectations for the last quarter of 2005.

Shares of Intel fell $2.67, or 10 percent, to $22.85 in early trading on the Nasdaq Stock Market. The stock has traded in a 52-week range of $21.89 and $28.84.

Intel, which reported its results after financial markets closed on Tuesday, blamed a combination of events, including a chipset shortage, lower prices and a weakness in demand for desktop PCs.

Intel also is facing its stiffest competition ever from Advanced Micro Devices Inc. (AMD), whose chips have drawn praise for outperforming those of its much larger rival. AMD will report its fourth-quarter results on Wednesday.

"Competition is pretty fierce out there right now," said Intel Chief Financial Officer Andy Bryant, who added AMD probably gained market share at Intel's expense.

Analysts worried that the results were a sign of trouble in the entire chip industry.

"People always look at Intel as a canary in a coal mine. When they're weak, it means something is wrong with the rest of the sector," said Apjit Walia, an analyst at RBC Capital Markets. "It's early to say that, but it definitely will make people get up and worry."

For the three months ended Dec. 31, Intel earned $2.45 billion, or 40 cents per share, compared with a profit of $2.12 billion, or 33 cents per share, in the same period last year. That's a 16 percent year-over-year improvement.

Sales jumped 6 percent to $10.2 billion, from $9.6 billion in the last quarter of 2004.

Analysts expected the Santa Clara, Calif.-based chip company to earn 43 cents per share on sales of $10.56 billion, according to a survey by Thomson Financial. In December, Intel narrowed its own sales forecast to $10.4 billion to $10.6 billion.

At the time, the company expected to relieve its shortage of chipsets by using those supplied by third parties, Bryant said.

"Our guess had been the chipsets would arrive in early December, allowing us to ship more processors in the quarter," he said. "Those chipset supplies actually hit in late December, so it constrained our ability to ship product."

For 2005, Intel earned $8.66 billion, or $1.40 per share, on sales of $38.83 billion. That compares with a profit of $7.52 billion, or $1.16 per share, on sales of $34.21 billion in 2004. It was the third straight year of double-digit revenue growth.

The company said its fourth quarter results, while disappointing, still saw record shipments of processors and chipsets that are central nervous system of computers. Flash memory, used in cell phones, also set a record and sold at higher average prices.

But the problems of the fourth quarter are likely to be felt in the first quarter, said Paul Otellini, Intel's chief executive.

"We are starting out in a bit more of a hole for '06 than we first had thought," he said.

The company said it expects sales to be between $9.1 billion and $9.7 billion in the first quarter, typically one of the weakest of the year. Analysts, on average, were expecting it to report sales of $10.05 billion for the period.

Competition in the microprocessor business has been heating up for the past three years. AMD, which was once best known for copying Intel's technology, started selling chips that have been critically acclaimed for their design and performance.

Intel not only slipped behind its rival but also ran into a number of product delays. But it did find success in carving out a large chunk of the notebook market with its Centrino technology that consists of a number of chips designed for mobile computers.

Now, the strategy of offering a "platform" rather than a chip is expanding beyond Centrino.

Earlier this month, the Viiv platform for home entertainment computers was launched. Besides the hardware, Intel is developing some of its own software, making content deals for the systems and running a quality-assurance program.

It's also introduced the Core Duo that is the next-generation microprocessor for Centrino systems as well as for desktop computers. Like its most recent Pentium 4 processors, it has two computing engines on a single chip.

Last week, Apple Computer Inc. (AAPL) started selling its first iMacs based on an Intel chip, the Core Duo. The Intel-based Macs launched months earlier than expected, and Apple's business — a small slice of the overall PC market — is reflected in the latest results.

Intel also has unveiled a major revamping of its marketing, with a change to its logo, a shift away from the Pentium name for its processor and a redesign of the Intel stickers that have adorned computer cases for more than a decade.

"Although we fell below our expectations for the fourth quarter, we enter 2006 with exciting new products," Otellini said.