Intel poised to spend $5 b

Daniel Sorid

SAN FRANCISCO: Intel Corp. will spend 20 percent more next year on tools and facilities for making chips, analysts estimate, suggesting the world's largest microchip maker has a rosy outlook for the industry overall.

While Intel's official forecast for 2005 capital spending is not scheduled to be made until January, analysts got an early look from a forecast made by Intel executives last week on the ratio of capital spending to cost of goods sold.

Based on average Wall Street estimates for revenue and gross margin, analysts calculated that Intel is budgeting for $4.5 billion to $5.0 billion in spending. Intel is the chip industry's biggest spender on factories and equipment.

"The fact that they're ticking it up a bit next year tells us the recovery is broad based," said Suresh Balaraman, an analyst with ThinkEquity Partners.

Intel's official forecast for capital spending invariably shakes up the stocks of equipment suppliers such as Applied Materials Inc.and KLA-Tencor Corp.

Shares of Intel fell 12 cents, or 0.4 percent, to $26.92 in afternoon trading on Nasdaq. Applied Materials shares were flat at $18.54.

Mark FitzGerald, an analyst with Banc of America Securities, said he calculated a $4.5 billion spending budget for Intel next year, but cautioned that such forecasts can change drastically if industry conditions or Intel's perspective on those conditions, change.

"It's great to have a plan, it's great to have a budget, but this is an incredibly volatile business," he said. FitzGerald said Intel often spends much more or much less than it forecasts.

Overall, spending on chip-making equipment is expected to rise 28 percent next year, according to a forecast by Gartner, before dipping 5 percent in 2006. Chip-gear spending plummeted in 2001 and 2002 in what was the industry's worst-ever downturn.

Intel last month said it had begun a $2 billion upgrade to a facility in Arizona. The plant is being overhauled to produce chips on 12-inch silicon wafers, which can be diced up into more than twice as many chips as standard 8-inch-diameter wafers.

Brett Hodess, an analyst with Merrill Lynch, said he estimates, based on recent comments, that Intel will invest $4.8 billion in capital spending next year, well above the $4.0 billion he had forecast.

Hodess said the forecast showed that "they think demand for chips and for computing, in particular for PCs and what not, will continue to grow at a fairly decent pace."

© Reuters