By Scott Hillis SAN FRANCISCO, July 19 (Reuters) - Intel Corp. (INTC,Trade) , the world's biggest chipmaker, posted a sharply lower second quarter profit on Wednesday and issued a disappointing sales forecast as it slashes prices to compete with Advanced Micro Devices Inc. (AMD,Trade). The technology heavyweight said it expected sales for the third quarter to be between $8.3 billion and $8.9 billion, lower than Wall Street's average forecast of $9.03 billion, according to Reuters Estimates. "The revenue number is definitely a worry," said Eric Ross, an analyst at ThinkEquity Partners. "I think they are going to do worse than this. There is a pricing dynamic in the industry. AMD and Intel are in a price war. Intel is probably going to underperform these numbers." Intel shares fell one percent to $18.30 in extended trading on the Inet electronic brokerage. The stock has fallen about a third over the past year as Intel has struggled to stem AMD's market gains. Net profit for the second quarter was $885 million, or 15 cents per share, down nearly 56 percent from a year earlier. Excluding stock-based compensation, Intel earned $1.12 billion, or 19 cents per share, compared with $2.04 billion a year earlier. That was better than the $808 million, or 13 cents per share Wall Street had expected. Revenue in the second quarter fell 13 percent from a year earlier to $8 billion, and was below the average forecast of $8.23 billion. Inventories, a key concern of investors who have fretted over the impact of Intel's price cuts on profit margins, rose by about a fifth from the previous quarter to $4.3 billion. Gross margin in the quarter was 52.1 percent, higher than Intel's earlier forecast of 49 percent but lower than the 55.1 percent in the previous quarter. For the third quarter, Intel said it expected that to be about 49 percent, "plus or minus a couple of points". "Margins stayed up better in the second quarter, but now some of the price cuts will bleed into the third quarter. The margin recovery will probably be held off until Q4," said Cody Acree, an analyst with Stifel Nicolaus. Intel's chief financial officer Andy Bryant said pricing would remain an issue throughout the year but that he expected Intel would regain some share from AMD. "We continue to see a competitive price environment," Bryant told Reuters. "I believe we'll gain market segment share in the back-half of the year. It's a competitive environment, so it's not an instantaneous overnight switch." Despite its recent woes, some analysts have said Intel may be poised for a comeback as it rolls out new chips that make it more competitive against AMD's offerings. It unveiled a new chip for server computers that run business networks last month, and is debuting a new desktop chip next week. Intel is also looking for ways to shave $1 billion in costs. In April, Chief Executive Paul Otellini launched an extensive review of the company's operations, leading to speculation that Intel may eventually lay off thousands of workers and dump lackluster products. The review, which ends later this month, has already led to the sale of the company's unprofitable communications chips business and the firing of 1,000 managers.
It may be that it takes some time to sink in before the market slides - for the bigger boys it will take time to unwind. But having said this, some of these big boys are so deeply invested in this and believe so much their own misinformation that they may hang in there. It may also be that the company is being regarded as having products which are "a necessity" to modern life (similar to a commodity) and this will totally skew the picture. No doubt the charts will tell us over the coming days / weeks. Maria
I wonder if this is really true outside the tech-obsessed power-user community. The bigger challenge, for both Intel and AMD, is the steady shift in the PC market from being dominated by the latest, greatest tech to being a matured commodity. Over the last 25 years, the average inflation-adjusted price of a brand new PC has dropped ten-fold as PC's became just another consumer electronics staple. Sure, Intel and AMD can continue to battle for whose fastest, coolest, etc., but its not where their bread-and-butter lies. Aside from a minority of hard-core gamers and power-users, most the milions of consumers and businesses just don't need a high performance CPU. Upgrade cycles have grown over the years as people realize that a 3 to 5-year-old machine still does the job so they don't need a new PC. And I'd bet that big sources of PC demand overseas (China and India) aren't willing to pay a premium for the latest tech. My point is two-fold. First, the current price war between Intel and AMD isn't a fluke, its a future long-term reality. Second, the competition for performance will become more of a niche business. Just as most of the cars on the road are basic models (not 0-60 in 4 sec. hotrods), so, too, most of the computer demand in the future will be $499 Dells with low-end processors. I'd bet that when people by a low-end Dell, they don't really pay much attention to speed, only the price. It's just like the airlines -- a few people still want the best and pay $1000s for First Class, but the vast majority buys the cheapest coach ticket they can find. Until Intel and AMD shift their business models from focusing on First Class performance to focusing on Coach-class price, they will have some financially disappointing quarters.
http://arstechnica.com/news.ars/post/20060720-7310.html Intel-based quad-core systems to combat AMD's 4x4 7/20/2006 10:56:26 AM, by Jon Hannibal Stokes
Don't be stupid. Don't buy Intel or AMD now. 1) Price war - bad for both but amd will be worse off 2) PC demand low. Low revenue Avoid these 2 counters. Wait for a few months for these 2 to fight it out. Then I foresee AMD rotting in misery and Intel triumphant after a bloody fight. Only after AMD has been well beaten do you buy Intel and hang around while Intel swoop in for the kill.
hmmm a new twist to the saga, AMD us buying ATI: http://www.tradearabia.com/tanews/newsdetails_snIT_article108688_cnt.html -Neo
INTC just recovered from a heavy downtrend.. still ranging right now.. no sign for an uptrend. but maybe in a few days..lets see