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Intel Earnings Fall Short of Expectations

Second-quarter earnings show a drop of 29 percent over same period last year.

By James Niccolai, PCWorld   

Revenue for the three-month period that ended June 27 was $5.9 billion, more or less flat with revenue of $6 billion a year ago, Intel said.

Analysts polled by earnings watchdog First Call had predicted the chip maker would post a profit of 68 cents per share for the quarter.

The results come on the heels of a lackluster first-quarter performance, when Intel's profits plunged 36 percent from the previous year and the chip maker announced plans to lay off 3000 employees.

"Despite a difficult environment for the computing industry, Intel has made significant strides toward increased productivity, just as we have worked to renew growth," said Craig R. Barrett, Intel's president and chief executive officer, in a written statement. "We have cut costs, extended our product line, and are ahead of schedule in using new manufacturing processes. As a result, we have increased Intel's competitiveness substantially."

About 750 workers were laid off during the quarter, but the firm also added 1800 employees through its acquisition of Digital Equipment's chip manufacturing operations. The timeframe to complete the staff reduction has been extended by one quarter to the end of the year, Intel said.

Also during the quarter Intel temporarily halted chip production at two Oregon plants and began a volunteer separation program for some of those Oregon employees.

Third-quarter revenues are likely to be flat or slightly up from those reported Tuesday, and sales in the second half of the year will be greater than those in the first, Intel said.

The second-quarter income of $1.2 billion was down 8 percent from first quarter 1998 income of $1.3 billion, which included $165 million in costs associated with Intel's acquisition of graphics chip maker Chips and Technologies, Intel said

Sales in the Americas and Japan were higher sequentially, while Asia-Pacific was relatively flat with the first quarter of 1998. Sales in Europe were lower in the second quarter, Intel said.

R&D spending for the year is expected to be about $2.8 billion, including $165 million for in-process R&D associated with the Chips and Technologies merger.

Gross margins in the third quarter will likely be up a couple of points from 49 percent in the second quarter. Gross margin expectation for the full year are unchanged at around 52 percent, plus or minus a few points, Intel said.

In the second quarter Intel repurchased 22.2 million shares of common stock at a cost of $1.7 billion, under an ongoing program. Since the program began in 1990, the firm has repurchased 257.7 million shares at a cost of $10.4 billion.

Intel's stock closed at $80.69, down $1.69 from yesterday's $82.37.