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Intel gains ground; Yahoo still limping

Each is fighting strong competition. The Web giant plans turnaround.

July 18, 2007|Dawn C. Chmielewski and Michelle Quinn | Times Staff Writers

Two technology industry bellwethers, Intel Corp. and Yahoo Inc., are wrestling with competition -- with dramatically different results.

Intel, the world's largest computer-chip maker, appears to be emerging bruised but stronger after two years of a price war with Advanced Micro Devices Inc. Intel said Tuesday that second-quarter earnings rose 44% thanks to its first sales increase in six periods.

Yahoo, meantime, has been pummeled by its once-smaller competitor, Google Inc. In the company's first earnings report since Terry Semel stepped down as chief executive, Yahoo co-founder and new CEO Jerry Yang urged investors not to give up.

He said he would spend the next 100 days crafting a turnaround plan for the Internet giant, and that there would be "no sacred cows" in the effort to dramatically improve the company's performance.

"I believe Yahoo is too often defined by the competitive landscape rather than by what we can accomplish with the assets we have," Yang said. "I am determined for us to define our own path."

Yahoo is trying to catch up to Google, whose potent search-related advertising system now lets it generate more money in a quarter than Yahoo does in a year.

Sunnyvale, Calif.-based Yahoo reported a quarterly profit of $161 million, or 11 cents a share, in line with analysts' lowered expectations. Revenue rose 8% to nearly $1.7 billion.

Yahoo has been losing ground in the $21.7-billion U.S. market for online advertising. Researcher EMarketer Inc. estimates that Google now gets 27.4% of every advertising dollar spent online while Yahoo's share has slipped to 16.3%.

Yang, who in June took the helm of the 13-year-old company, said he would accelerate Yahoo's transformation by investing in innovative technologies and forcing the company to make decisions faster.

President Susan L. Decker acknowledged missteps, particularly in the search-engine business. But she said Yahoo's new system for delivering targeted search-engine ads, known as Project Panama, had yielded financial gains for the quarter, with double-digit improvement in revenue after declines a year earlier.

"We are working diligently to get Yahoo on the right path, and we are committed to addressing the root causes of our challenges rather than making only short-term cosmetic changes," Decker said.

At least one analyst was unmoved by Yahoo's pep talk.

"It appears that Yahoo continues to desire to go it alone. That's not what investors want," said Jordan Rohan, an analyst with RBC Capital Markets. "I think a sale or a combination with another large entity is a high probability. It's just a question of when. It appears not in 2007."

Yahoo's shares gained 83 cents to $27.53, but then gave back $1.13 in after-hours trading after the earnings report.

Meanwhile, Intel posted a second-quarter profit of $1.3 billion, or 22 cents a share. Excluding a one-time tax gain of 3 cents a share, the earnings were in line with Wall Street's expectations of 19 cents.

The Santa Clara, Calif.-based chip maker said revenue increased 8% to $8.7 billion, compared with $8.5 billion analysts had expected.

Intel CEO Paul Otellini cited growth in chip sales for servers and notebook computers, and he said China and other developing countries were buying more products.

As AMD stepped up the competitive pressure with price cuts in the last two years, Intel fought back by refreshing its product line and cutting costs through layoffs and other measures.

The moves worked. Intel captured 80% of the PC processor market in the first quarter, up from 74% a year earlier, according to Mercury Research Inc.

But the share gains came at a cost. Intel's second-quarter profit margins trailed forecasts, which analysts took as a sign that the company was still battling with AMD on pricing, particularly in desktop computers.

Intel's shares gained 38 cents to $26.33 before dropping $1.28, or nearly 5%, after hours. The shares have gained 25% in the last three months.

"People were looking for Intel to beat the Street big time," said Doug Freedman, a San Francisco-based analyst with American Technology Research. "It's just a case of people getting too aggressive on where this thing can go and how quickly it can go there."

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