SANTA CLARA, Calif. – Intel Corp. on Tuesday reported a 77 percent drop in fourth-quarter earnings on an extended drop in demand for personal computers, but both profits and revenues of the No. 1 chipmaker topped analysts' forecasts amid a bounce in PC sales over the holidays.
Intel said it does not yet see any signs of an economic recovery and forecast first-quarter sales of $6.4 billion to $7.0 billion, implying revenue either flat or falling as much as 8.3 percent from the fourth quarter. The company also plans to cut capital spending in 2002 by 25 percent from $7.3 billion in 2001.
Still, Intel said it was putting the chipmaking capacity in place to be prepared when demand does resume, which Intel is not expecting until at least after the first quarter. The move to using larger, dinner-plate-sized wafers and to making chips with smaller line widths will also help to cut costs.
``Intel isn't saying when the economy picks up we're going to see a huge bounce, they're saying we're at these levels right now and you should expect normal seasonality,'' said Lehman Brothers analyst Dan Niles. ``That's just not what people want to hear.''
Intel shares fell as low as $33.71 in after-hours trade, after falling 16 cents to $34.68 in regular trading. Shares of Intel have soared 75 percent since an Oct. 2 low for the Philadelphia Semiconductor Index, a proxy for the sector. That index, which includes Intel as a component, has gained about 57 percent in the same time period.
PROFITS, REVENUE TOP FORECASTS
Excluding acquisition-related items, Intel had a profit of $998 million, or 15 cents a share, down 62 percent from year-ago profit excluding acquisition-related costs of $2.63 billion, or 38 cents a share. Sales fell 20 percent to $6.98 billion from $8.7 billion.
On that basis, analysts had forecast Santa Clara, California-based Intel to earn 10 cents to 13 cents a share, with a mean profit forecast of 11 cents a share, according to research firm Thomson Financial/First Call. Sales were pegged at $6.84 billion.
Analysts expect Intel to report first-quarter profits of 12 cents, within a range of 9 cents to 15 cents, on sales of $6.53 billion, estimates that don't take into account Intel's guidance given on Tuesday, according to First Call.
Niles said after the conference call that he is not planning on changing his per-share profit estimates for 2002 or 2003, which are 67 cents and $1.00, respectively.
The company plans capital expenditures, a closely watched figure by the semiconductor industry, at $5.5 billion in 2002, down by some 25 percent, from about $7.3 billion in 2001. That was lower than chip-equipment company investors had been expecting, and they pummeled the companies' shares in extended trading.
Roughly half of that $5.5 billion Intel plans to spend in 2002 will go toward purchasing chip-manufacturing equipment and the largest piece of that portion will be spent on a production switch to 300-millimeter-diameter wafers from ones that are 200 millimeters in diameter, Bryant said.
NO SIGNS OF ECONOMIC RECOVERY
``We've seen no signs of an economic recovery,'' said Andy Bryant, Intel's chief financial officer, in an interview. ''We're forecasting a seasonal (first quarter) and putting capacity in place so that if the economy rebounds we're in place''.
Including acquisition costs and other items, Intel reported net income fell 77 percent to $504 million, or 7 cents per share, from $2.19 billion, or 32 cents, a year ago. For all of 2001, Intel's net income plunged 88 percent to $1.29 billion from $10.4 billion as sales fell 21 percent to $26.5 billion from $33.7 billion.
``2001 is easily the worst recession this industry has ever seen,'' Bryant said, adding that he believed that company gained 1 to 2 percentage points of market share during the quarter, principally at the expense of Advanced Micro Devices Inc. AMD reports quarterly results on Wednesday.
Intel's capital spending plans for 2002 were less than what many investors had expected, spurring a drop in shares of chipmaking equipment companies. Those plans are closely watched by the semiconductor equipment industry, because Intel is the single biggest consumer of the multimillion-dollar equipment used to produce microchips.
Shares of Applied Materials Inc., the No. 1 maker of equipment used to make microchips, dropped 6.8 percent in after-hours trading to $42.50 from $45.61 at the closing bell.
But Merrill Lynch analyst Joe Osha dismissed focusing on Intel's capital spending figure as a gauge for overall demand in the PC and semiconductor industries.
``It does not hold any information about where Intel thinks demand is going,'' Osha said. ``The capital spending that this company has set is a result of technology road maps set a long time in advance.
``There's a common misconception that Intel looks at business conditions when setting their capital spending plans and that's just not the case,'' he said.
Gross margin as a percentage of sales, or the remainder of sales after subtracting product costs, is forecast to be 51 percent, plus or minus a few points, in 2002, Intel said.
PROCESSOR PRICES LITTLE CHANGED FROM THIRD QUARTER
As for the average selling price (ASP) of Intel's microprocessors, it was little changed from the third quarter, even excluding lower-priced Pentium III chips used in Microsoft Corp.'s Xbox video game console.
That means that even though Intel's Pentium 4 processor was in tight supply in the fourth quarter as many analysts had speculated, the company was not able to raise prices sufficiently to offset declines in other processors it sells.
``Everybody has been talking about how Pentium 4s are in short supply but ASPs got no help in the fourth quarter,'' Niles said.
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