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Intel's Profit Declines 29% in 2nd Quarter

Earnings: Decrease is greater than expected as sales falter. Chip maker says third quarter will show little improvement.

July 15, 1998| From Bloomberg News

Intel Corp., the world's top maker of computer chips, said Tuesday that its second-quarter profit fell a greater-than-expected 29% as sales faltered. The company also warned that the third quarter will show little if any improvement.

Profit dropped to $1.17 billion, or 66 cents a diluted share, from $1.65 billion, or 92 cents, in the year-ago quarter. Analysts expected earnings of 68 cents, according to First Call Corp. Sales slipped to $5.93 billion from $5.96 billion.

Intel expects third-quarter sales to be little changed to slightly higher. Many investors had bet on a more optimistic forecast, boosting Intel shares about 10% this month and banking on the technology bellwether to foreshadow a revival in the personal computer industry. PC maker Compaq Computer Corp. reports its earnings today.

"It's not all that bullish a report," said Graham Tanaka of Tanaka Capital, which owns 250,000 Intel shares.

Intel shares fell $1.69 on Tuesday to close at $80.69 in regular Nasdaq trading. They dropped as low as $79.38 after the close of U.S. markets, when the company reported earnings.

"Flat to modestly up is less than people hoped for in third-quarter" guidance, said Steve Dube, an analyst at Wasserstein Perella Securities in New York. "Revenue growth isn't there, and the company is struggling with expenses."

Intel shipped fewer of its mainstay microprocessors, which power most of the world's PCs, in the second quarter than in the first. Shipments of other products also dropped at the Santa Clara, Calif.-based company, though shipments of some specialized chips, including flash memory, increased.

Gross margin--the percentage of revenue remaining after production costs are subtracted--fell to 49% in the second quarter from 54% in the first. Two percentage points of the decline were caused by a write-down of inventory from lower manufacturing costs, the company said.

"Despite a difficult environment in the computing industry, Intel has made significant strides toward increased productivity just as we have worked to renew growth," Chief Executive Craig Barrett said.

Intel said it expects its gross margin to widen a few points in the third quarter. Sales in the second half will also be stronger than in the first half, the company said.

The company said it extended until the end of the year its plan to complete about 3,000 job cuts, primarily through attrition.

At a Glance:

* Genentech Inc., a South San Francisco-based biotechnology company that is majority-owned by Roche Holding, said second-quarter earnings rose 70%, and it raised its 1998 earnings forecast as sales of a new cancer drug offset declines by an older heart drug. Net income rose to $40.4 million, or 31 cents a diluted share, from $23.8 million, or 19 cents, a year earlier. Revenue increased 15%, to $268 million from $233.5 million.

* Ascend Communications Inc. reported a second-quarter profit as the No. 5 computer-networking company boosted sales in its key product lines. Net income was $59.1 million, or 29 cents a diluted share, contrasted with a pro forma loss of $48.8 million, or 26 cents, in the year-earlier period. The year-ago figures were adjusted to include results for Cascade Communications Corp., which Ascend bought in June 1997. Revenue rose 5%, to $327.4 million from $311.7 million.

* Seagate Technology Inc. said fiscal fourth-quarter profit fell, as the world's largest independent disk drive maker was hurt by falling prices for its products. The Scotts Valley-based company said profit before charges fell to 11 cents a share in the quarter ended July 3, compared with profit of 61 cents in the year-ago period. That was better than the 6-cents-a-share consensus estimate of analysts. Revenue fell 20%, to $1.58 billion from $1.98 billion.

* Cypress Semiconductor Corp. reported a second-quarter loss of $6.7 million, or 7 cents per diluted share, contrasted with a profit of $6.1 million, or 7 cents, in the year-earlier quarter. Revenue declined to $119.7 million from $138.1 million.

* Broderbund Software Inc.'s fiscal third-quarter loss was in line with analysts' revised estimates, as product rebates and returns of its popular "Riven" fantasy game cut into profit. The Novato-based firm's loss was $2.66 million, or 13 cents a share, for the period ended May 31, contrasted with profit of $11,000, or break-even, a year ago.

* Rambus Inc. said fiscal third-quarter profit more than tripled to $1.69 million, or 7 cents a share on a diluted basis, up from $527,000, or 2 cents, a year ago. The results were in line with Wall Street expectations.

* DOW RECORD: Blue chips hit new highs on earnings news, but the broad market is weak. D3

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