Dragged down by lower microprocessor shipments and skyrocketing inventories, Intel on Tuesday reported flat revenue and earnings for the second quarter.
Intel Corp., based in Santa Clara, Calif., reported a net income of $1.8 billion on revenue of $8.05 billion, slightly lower than the $8.1 billion in revenue that analysts expected. While the companys earnings and revenue failed to improve over the first quarter of 2004, Intels net income increased 96 percent year-over-year, and revenues increased by 18 percent.
Intel reported $5.75 billion in microprocessor revenues, a slight drop from the $5.98 billion the company reported in the first quarter. Chip set and motherboard revenue also fell from $1.05 billion to $1.02 billion, although the company reported increased sales of chip sets, and motherboard sales reached a record high.
More troubling was a corresponding $427 million increase in inventories, roughly half of them from Intels new 90-nm "Prescott" chips. During the second quarter, Intels inventory levels reached an all-time high of $2.8 billion. The additional inventory bloat again added to Intels on-hand stocks, pushing the figure up to $3.2 billion.
Rising inventories can be a problem for companies such as Intel, which are forced to warehouse the parts until just-in-time PC OEMs are ready to build product. Since Intel wont be making as many parts, its manufacturing cost per processor will increase, and profits will fall over the next quarter or two.
Historically, the additional inventory can lead to extreme pricing discounts or even a write-off of inventory. But Intel is expected to cut prices on its Pentium 4 processors by only 20 percent to 35 percent this August, analysts and other sources have said.
"I dont think well have to take an inventory write-off," Intel chief financial officer Andy Brant told analysts during a conference call Tuesday afternoon. "I dont want to say it cant happen … [but] I feel fairly comfortable right now."
Intel executives said the company decided in the last weeks of June that it would slow production during the third and fourth quarters to let the companys inventories slowly dwindle.
But the company said it isnt putting its fab expansion plans on hold. "Were not idling anything; were just not ramping it as fast," Paul Otellini, Intels president and chief operating officer, said during a conference call with analysts Tuesday afternoon. "On the other hand, the effect is the same."