Intel Looks to Fight Back in Second Half

Intel is hitting the reset button, following a lackluster first quarter.

The chip giant, which on April 19 reported first-quarter 2006 revenue of $8.9 billion and earnings per share of 23 cents, down 5 percent and 44 percent, respectively, from the first quarter of 2005, after warning that it would deliver lower than expected earnings for the quarter on March 3.

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Now its tightening up its belt. It will reduce spending by about $1 billion, begin its first company-wide business review since the 1980s, and take action to help burn off excess chip inventory at its customers.

But it is also acting to speed the introduction a new generation of processors based on its Core Microarchitecture—its first such transition since the launch of the Pentium 4 in late 2000—that it hopes will put it back in the game in the second half of the year.

Intel executives, speaking in a post-earnings release conference call with analysts, acknowledged that the company lost market share to rival its rival Advanced Micro Devices in the second half of 2005.

Andy Bryant, Intels CFO, said he believed that Intel held the held the line on share in the first quarter.

But AMDs competitive stance, combined with a modest processor inventory glut of several million chips and moderating PC shipment growth rates—they are shifting from double-digit numbers seen in recent years to high-single digits figures this year—all added up to a lackluster first quarter for Intel.

Some of the effects will also spill into the second quarter, historically the low point for the year for PC chips, causing Intel to slightly lower its financial expectations for 2006.

However, Intel expects to emerge in the second half as a stronger competitor, thanks to its new chips. It aims to regain some of its lost market share using the strength of the new products as well as aggressive pricing.

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