Intel Earnings Fall Short of Expectations

The chip maker expects little pickup in sales this holiday season.

Intel Corp. Tuesday drew a gloomy picture for the high-tech industry as the giant chip maker reported earnings below expectations and said it expects little pickup in sales this holiday season, which traditionally has been the strongest quarter of the year.

The chip maker, which produces the majority of microprocessors sold in PCs and servers worldwide, reported third-quarter net income of $686 million, or 10 cents a share, a big improvement over the relatively paltry $106 million, or 2 cents per share, it earned a year ago. Intels net income fell slightly short of Wall Street estimates, although the companys overall sales of $6.5 billion came in as expected.

Intels recent quarterly earnings are a far cry from the $2.1 billion in net income it posted during the fourth quarter of 1999. In early 2000, once-surging demand for PCs dried up as the United States entered a recession. Since that time, nearly all of the high-tech industrys leading companies have seen their profits erode, with many posting record losses as sales collapsed.

For the last two years, the computer industry has been anxiously awaiting for sales to rebound, but continued weakness in the United States and global economies has caused businesses and consumers to rein in their spending, spurring market analysts to repeatedly revise forecasts and push back calls for a high-tech recovery until late 2003.

An executive with Intel, based in Santa Clara, Calif., said that while the company had a slight pickup in sales near the end of the quarter, a time when PC makers usually begin building computers for their holiday-related sales promotions, it wasnt as big an increase as it had been traditionally.

"There is some demand out there, but not as strong as you would typically see in the second half of the year," said Andy Bryant, Intels chief financial officer.

Looking ahead, Bryant predicted revenues for the fourth quarter would be flat to slightly higher, well below some Wall Street projections prior to Intels earnings release. Earlier this year, financial analysts covering the computer industry predicted stronger sales for the fourth quarter, but have been gradually scaling those numbers back and will likely cut them further following Intels lead.

Last week, analysts with Merrill Lynch & Co. Inc. projected that PC shipments would decline 3 percent this year.

Despite relatively weak earnings, Intels chief executive, Craig Barrett, said the company will continue to invest heavily in building and upgrading its multibillion-dollar manufacturing plants and to spend heavily on research and development.

"Although the industry is experiencing one of its worst downturns ever, we continue to move our technology forward," Barrett said in a statement issued with the earnings. "Going forward, we remain committed to investments in new products and technologies, setting the stage for us to emerge even stronger when the economy and demand recover."

The chip maker said it will spend up to $4.7 billion on capital expenses this year, largely to retool and build new plants, and about $4 billion on R&D. However, Intel did lower its capital expenditure estimates from last quarter, when it predicted it would spend $5.0 billion and $5.2 billion for the year.