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INTEL to boost output of new chips in attempt to move beyond earnings plunge

Updated:

SAN JOSE, California (AP) _ Hoping to move beyond its 94 percent plunge in second-quarter earnings, Intel Corp. plans to crank up production of its high-end Pentium 4 chips as part of an all-out effort to tempt computer buyers.

The world's leading maker of computer chips said Tuesday that in the three-month period ending June 30, it had a net profit of dlrs 196 million, or 3 cents per share, down sharply from dlrs 3.14 billion, or 45 cents per share, in the year-ago quarter.


Intel shares fell 40 cents to dlrs 29.50 in early trading Wednesday on the Nasdaq Stock Market.

Intel's microprocessor shipments rose 6 percent from the first quarter, though the average selling price declined because of its aggressive cost-cutting aimed at fending off Silicon Valley rival Advanced Micro Devices Inc., which has been gaining market share.

Sales of Intel's communications and flash memory chips _ used in gadgets such as cell phones and digital cameras _ were soft.

Looking ahead, Paul Otellini, an executive vice president, said Intel was embarking on a ``very single-minded drive'' to phase out its older generation of Pentium 3 chips sooner than originally planned.

Intel is speeding up the rollout of the high-end Pentium 4 processors, making them available for consumer PCs that cost as little as dlrs 800 by the end of the year. Intel hopes the ultra-fast Pentium 4 chips and Microsoft's new operating system, Windows XP, will give consumers good reasons to upgrade their PCs and awaken the market from its slump.

``Intel has one fairly significant problem: The Pentium 4 is critical because it starts to open up a gap between the competitors,'' said analyst Steve Kleynhans, a vice president at the Meta Group in Stamford, Conn. ``AMD has obviously caught up to the Pentium 3 and surpassed the Pentium 3. Pentium 4 is tanking badly in the market, and (Intel will) do everything to ensure that Pentium 4 becomes the mainstream chip.''

Second quarter revenue was dlrs 6.3 billion, down 24 percent from dlrs 8.3 billion a year ago.

Excluding one-time events, Intel would have earned dlrs 854 million, or 12 cents per share. Analysts surveyed by Thomson Financial/First Call were expecting 10 cents per share.

Intel said the uncertain economic climate made it difficult to predict short-term results. Revenue in the current quarter is expected to be between dlrs 6.2 billion and dlrs 6.8 billion _ in line with the consensus Wall Street estimate of dlrs 6.5 billion, according to Thomson Financial/First Call.

``I would categorize consumer markets worldwide as being spotty, with places like Latin America, China and India very strong, and Japan still weak, Western Europe marginally weak and the United States sort of flat,'' Otellini said. He added that Intel executives are ``cautiously optimistic'' the picture will improve in the second half.

Ray Hirsch, a senior equity analyst with American Express, said he was impressed that Intel's manufacturing capability is so strong that the company can ramp up Pentium 4 production and cut prices without seeing its margins slide precipitously. Gross margins this year are expected to be around 49 percent, just off previous projections of 50 percent.

``This company is doing exactly what it should be, trading off their tremendous manufacturing leverage, taking their assets, cash in the bank, and putting it to use,'' he said. ``Betting on the future rather than micromanaging in a slow economy.''
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