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Intel Profit Trails Forecast

Weaker-than-expected sales of desktop PC chips hold earnings below analysts' estimates despite record revenue.

January 18, 2006|Terril Yue Jones | Times Staff Writer

SAN FRANCISCO — Chip maker Intel Corp. reported its first $10-billion quarter Tuesday but disappointed investors with earnings and revenue below expectations. Its stock fell more than 9% in after-hours trading.

Slower-than-anticipated sales of desktop computer microprocessors and lower processor prices held fourth-quarter profit below forecasts, despite record revenue for the quarter and the full year.

"It was a big miss," said Apjit Walia, an analyst with RBC Capital Markets in New York.

Intel's stumble is significant because the chip giant is seen by many as a proxy for the tech sector and frequently sets the tone for the global PC market. It came on a day when another technology giant also faltered: Yahoo Inc. reported that its earnings, revenue and forecast fell short of Wall Street expectations.

Intel earned $2.5 billion in the fourth quarter, or 40 cents a share, up from $2.1 billion, or 33 cents a share, in the fourth quarter a year earlier. Wall Street analysts polled by Thomson Financial had expected Santa Clara, Calif.-based Intel to earn 43 cents a share for the quarter.

Revenue was $10.2 billion, compared with $9.6 billion in the fourth quarter a year earlier, but it fell short of analysts' expectation of $10.6 billion. The company even missed its own mid-quarter forecast, issued last month, of $10.4 billion to $10.6 billion. The chip maker said Tuesday that it would no longer give mid-quarter guidance.

Intel predicted profit in the current quarter would be 37 cents a share on revenue of $10.1 billion, in line with analysts' consensus. The company said revenue for calendar 2006 would grow 6% to 9%, or up to $42.3 billion. It would be the first time in four years that Intel would not achieve double-digit year-over-year sales growth.

Intel issued its earnings report after the market closed. Its stock, which ended at $25.52, down 27 cents, fell to $23.10 after hours -- a drop of 9.5%.

"It was a significant miss for Intel because they had been meeting or beating expectations for several quarters. It's really quite amazing," said Graham Tanaka of Tanaka Capital Management, which manages $150 million in assets and owns about 15,000 Intel shares.

Intel's management blamed the disappointing earnings on an end-of-the-year drop-off in chip sales. "2005 was a great year punctuated by a difficult December," Chief Financial Officer Andy Bryant said.

Bryant and Chief Executive Paul Otellini said they expected a strong 2006 with the rollout of dual core processors -- chips with two computing engines each -- for desktop, laptop and server computers, and the debut this month of Viiv hardware and software, which will provide access to improved multimedia content over the Internet.

Intel has also begun selling chips to Apple Computer Inc., which is switching to them in all its laptops and desktops from chips made by IBM Corp. and Freescale Semiconductor Inc.

"We are planning for another year of growth and are optimistic that our competitive position will improve" with new products for the digital home and office and for emerging markets, Bryant said during a conference call with analysts.

That remains to be seen, Tanaka said.

"In the last year and a half or two they gave up share because they didn't have the capacity, and gave up share to AMD," Tanaka said, referring to Advanced Micro Devices Inc., the No 2 maker of PC processors.

AMD has been on a roll for the last year and in October outsold Intel for the first time in the U.S. retail PC market for both desktops and laptops. But on Tuesday Merrill Lynch cut AMD shares to "sell" from "neutral" over concern that Intel will retake share from AMD this year.

"I think we will be in a position to regain share in 2006," Otellini said. "You can plot the regain of market share with the rollout of dual core."

For the full year, Intel earned a record $8.7 billion, or $1.40 a share, up from $7.5 billion in 2004. Revenue was $38.8 billion, up from $34.2 billion in 2004 but also short of the $39.2 billion analysts had expected for 2005.

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