The words "Intel" and "plunging" are rarely used in the
same sentence. But during the April-June quarter, Intel's profits plunged 76 per
cent to $854 million from $3.5 billion in the same period in 2000. Sales also
fell a whopping 24 per cent to $6.3 billion from $8.3 billion. Intel is
struggling from a triple doze of bad news: a slowing global economy, slow PC
sales, and a stinging price war with Advanced Micro Devices.
As a result, Intel shares are trading at below $30, down from a peak of $75
in August 2000. The earnings per share of 12 cents bettered analysts
expectations of 10 cents.
Intel's results could easily have been worse. But unit sales of Intel
microprocessors increased from the first quarter. "We actually saw
microprocessor unit shipments grow by about 6 per cent sequentially. This gives
us confidence that the stronger seasonal second half that we typically
experience will happen," commented Intel chief financial officer Andy
Bryant. While competition with Advanced Micro Devices is intense, Intel brought
a lot of the price war problems of the past quarter onto itself. Desperate to
get sales of Pentium 4 processor to take off, Intel surprised everyone, this
spring by launching a 1.7 GHz P-4 for just $330, well below the competing AMD
1.4 GHz Athlon.
The aggressive pricing on the 1.7GHz chip forced Intel to also cut prices on
other Pentium 4 and III as well as on Celeron chip. That reduced the average
selling price of Intel processors, resulting in the large drop in revenue and
earnings.
Both Intel and AMD are likely to face a tough second half. While the two
chipmakers reported higher unit shipments in the past three months, computer
makers, like Compaq have warned of slowing sales. That means microprocessor
inventories are building up, which in turn could cause the flow of new orders to
drop in the coming months, further complicating the financial situation for both
companies.
Intel, however, appears determined to keep up the pressure on AMD and will
continue to launch new and more powerful chips at very competitive prices. Intel
executive vice president Paul Otellini said he expects mainstream PCs using the
Pentium 4 microprocessor will sell for under $800 by the end of the year. A 2
GHz chip has also been promised to hit the market by year's end. Otellini said
Intel has the production capacity and efficiency necessary to make the Pentium 4
the dominant processor in the PC market.
Otellini said he disputes recent market figures that show AMD taking 22 per
cent of the microprocessor market. He said the market research firms do not have
Intel's data and are working with poor data to reach market share conclusions.
"I suspect they'll revise it soon."