Intel to cut 4000 jobs

By Duncan Martell

SAN FRANCISCO: Intel Corp. on Tuesday said it would cut 4,000 jobs, or nearly 5 percent of its work force, as it posted second-quarter revenue and earnings at the low end of Wall Street expectations.

The world's biggest chipmaker forecast that current quarter revenue would be flat to slightly higher, saying an expected economic recovery had not yet taken hold in its markets. Intel said corporate spending on investment technology showed no signs of ticking up, although it did see a stronger second half, which is typical for the personal computer industry.

Intel also trimmed its forecast on capital spending to $5.0 billion to $5.2 billion from an earlier expectation of $5.5 billion, but said there had been no change in its plans for producing microprocessors such as its flagship Pentium 4.

Santa Clara, California-based Intel said the work force reductions would come in the second half of the year, primarily through attrition and buyout packages. Last year, Intel cut about 5,000 jobs, also mostly through attrition.

"We were hoping to see the beginning of the economic recovery," said Andy Bryant, Intel's chief financial officer, on a conference call. "We haven't seen it."

Intel posted net income of $446 million, or 7 cents per share, including charges, compared with $196 million, or 3 cents a share, in the year-earlier quarter, which included 9 cents a share in acquisition-related costs.

Revenue was $6.32 billion, little changed from the $6.33 billion in the year-earlier quarter.

The results included $106 million in charges to close its Intel Online Services Web hosting business, along with a $112-million write-off of acquired intangibles, mostly related to networking PC cards made by its Xircom business unit.

Intel, which like other technology bellwethers has suffered from slower corporate spending and a dismal personal computer market, also forecast that gross margin in the third-quarter would rise to about 51 percent from 47 percent in the second quarter. But it also lowered its forecast for gross margin for all of 2002 to about 51 percent from its previous expectation of 53 percent.

Intel forecast third quarter revenue of $6.3 billion to $6.9 billion, flat to up by about 9 percent. In the last five years, Intel's revenue growth from the second quarter to the third quarter has ranged between 3 percent and 14 percent.

"My sense is that they feel the seasonally strong third quarter will be a little muted due to slightly higher inventories, lower corporate spending and the overall mediocre economy," said Justin McNichols, portfolio manager at San Francisco-based Osborne Partners Capital Management, which owns Intel shares.

'Doing the right things'

"We're doing the right things in the business but still waiting for the economic recovery to hit our sector," says Bryant. Consumer spending on PCs has held up reasonably well, but corporate PC spending had yet to resume and that accounted for the low-end of Bryant's revenue guidance for the third quarter, he said on a conference call with analysts.

Excluding acquisition-related charges, Intel would have earned $620 million, or 9 cents per share. The charge for shutting the Web hosting business amounted to a penny per share, Bryant said in the interview, implying pro forma earnings of 10 cents a share.

Analysts had expected Intel to post second-quarter net income of 11 cents a share, according to Thomson First Call. Estimates ranged from 10 cents to 12 cents and revenue was forecast at $6.34 billion. For the third quarter, analysts expect net income of 14 cents, within a range of 11 cents to 19 cents, on revenue of $6.72 billion.

Second half seen stronger

As for the third quarter, most analysts had been forecasting a sequential increase in revenue of about 5 percent to 7 percent, as Intel ships processors to PC makers such as Dell Computer Corp., Hewlett-Packard Co. and others ahead of the back-to-school season.

Revenue from Intel's flagship processor and chipset business rose slightly, as did the top line in its networking operations, while revenue in its wireless communications and computing group rose more than 15 percent to $532 million from $459 million in the first quarter.

But the operating loss for the wireless group, consisting mostly flash memory chips, widely used in cell phones, widened to $98 million in the second quarter from $68 million in the first quarter. This could be attributed to the pricing pressure and start-up costs related to production using 0.13 micron manufacturing technology, Bryant said.

President and Chief Operating Officer Paul Otellini said on the call that revenue from flash memory chips rose about 16 percent in the second quarter from the first quarter. He also said that he believed Intel had gained two to three points of market share, putting it at the highest level in two years.

Intel's rival, Advanced Micro Devices Inc., with about 20 percent of market for microprocessors in PCs, reports second-quarter results on Wednesday. Intel has about 80 percent of that market and has been widening its lead over AMD in terms of the performance of its chips.

© Reuters