Intel, AMD look to crucial quarter for PC sales

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By Duncan Martell

SAN FRANCISCO: When Intel Corp. and AMD report their third-quarter results this week, the focus will be on what they say about the crucial last quarter of the year, usually the strongest for the personal computer industry.

"People are going to be looking heavily at the fourth quarter," said Dan Niles, an analyst at Lehman Brothers, who expects Intel to report net income of $825 million, or 12 cents a share, on revenue of $6.5 billion.

Intel, the world's largest chipmaker, in early September published its mid-quarter update, tightening its revenue range for the third quarter to $6.3 billion to $6.7 billion from $6.3 billion to $6.9 billion, reassuring investors at the time that the beleaguered PC industry was not getting far worse.

Meanwhile, AMD, Intel's principal rival in the market for microprocessors that are the "brains" of PCs, stunned investors on Oct. 2 with news that its third-quarter revenue would be 18 percent below Wall Street expectations at the time, leading to a large operating loss. AMD cited a weak PC market and a build-up of chips among PC makers.

"We know they're coming off significant weakness in the third quarter, so what AMD reports won't really matter much for the overall PC space," said Dan Scovel, an analyst at Needham & Co. "Because of the financial stresses on AMD right now, the outlook for them is much more inward-looking than outward-looking to the overall industry." Intel is due to report its quarterly earnings on Tuesday and AMD's results are due out on Wednesday.

Rough sledding for PCs

With a few notable exceptions such as Dell Computer Corp., the PC industry is having a bad year, after sales fell in 2001 for the first time since the mid-1980s. Analysts and market research firms have steadily ratcheted down estimates for 2002 worldwide shipments.

Richard Gardner, PC analyst for Salomon Smith Barney, on Thursday cut his estimate for worldwide PC shipments to a decline of 1 percent from 2001 compared with an earlier forecast for an increase of 5 percent. He cut his estimates for 2003 to 2 percent growth from 10 percent growth. The performances of Intel and AMD stock reflect the industry's sourness: Intel stock is down 52 percent while AMD is off 76 percent so far this year.

Analysts on average expect Intel, which garners roughly 80 percent of its revenue from the PC market, to earn 13 cents, within a range of 10 cents to 14 cents, on revenue of $6.5 billion in the third quarter, according to Thomson First Call.

AMD is now expected to post a quarterly loss of 67 cents, within a range of a loss of 56 cents to 72 cents, on revenue of $500 million, according to First Call. Before AMD's warning, analysts had expected $614 million in revenue and a loss of 49 cents a share.

"The big question for AMD is how to alleviate their cash-burn situation," Niles said, noting that AMD is going through roughly $300 million a quarter. "They need to address that so they're in business nine months from now."

In addition to a slow first half, the back-to-school PC buying season was weaker than expected. Combined desktop and notebook sales in August rose 16 percent month to month, compared with the prior four-year average of a 37 percent increase, according to researcher NPD Intelect.

No fourth—quarter barn burner

Niles expects Intel's unit shipments of microprocessors to rise slightly in the third quarter from the second, while AMD's will decline more than 10 percent. He expects Intel's average selling price for its processors to fall "very slightly" but AMD's to drop up to 20 percent.

Fourth-quarter revenue for Intel and AMD will likely increase from the third quarter, as it typically does, because of holiday shopping. But analysts aren't expecting a barn burner to close out the year. Niles expects Intel's fourth-quarter revenue to rise 5 percent from the third quarter, while Scovel is forecasting Intel's fourth-quarter revenue to rise 8 percent sequentially. Typically the increase in the fourth quarter from the third is 15 percent to 20 percent. "I'm at half that growth rate and that's the good news," Scovel said.

But in the end, whatever Intel and AMD forecast for the fourth quarter is just that -- a forecast, and one that will more likely than not need to be revised. "Whatever Intel says about the fourth quarter, they're going to be wrong," Niles said. "The question is, are they going to be wrong because they're too optimistic or too pessimistic?"

© Reuters