Intel Profits Plunge 90% In PC Market Slump - InformationWeek

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Infrastructure // PC & Servers

Intel Profits Plunge 90% In PC Market Slump

While declining to provide a formal projection for the first quarter of this year, Intel said that for internal purposes, it's planning for sales of around $7 billion.

Intel on Thursday reported that fourth-quarter profits plummeted 90% and revenue fell 23% as the chipmaker became the latest casualty in the economic downturn that has hammered sales of PCs and consumer electronics.

With the economy in tatters as a result of falling home and stock prices, tight credit, and rising joblessness, Intel declined to offer an official revenue forecast for the current quarter.

"The economy and the industry are in the process of resetting to a new baseline from which growth will resume," Paul Otellini, president and chief executive of Intel, said in a statement. "While the environment is uncertain, our fundamental business strategies are more focused than ever."

Net income in the fourth quarter fell to $234 million, or 4 cents a share, from $2.27 billion, or 38 cents a share, the same period a year ago. Revenue fell to $8.23 billion, which was in line with the revenue warning Intel issued last week. It was the second time in as many months that Intel lowered its revenue projections.

Besides lower sales, Intel's profits were hurt by a $1 billion net loss in its equity investment in Clearwire, a wireless broadband provider that leverages WiMax technology heavily promoted by Intel. Overall, Intel reported a $1.1 billion net loss in equity investments. The company had originally forecast a loss of $50 million.

Intel's closely watched gross margin fell nearly six points from the third quarter to 53%, primarily because of charges from higher underutilization of its factories and higher inventory write-offs. Gross margin for the first quarter of this year is expected to fall to the low 40s, primarily because of charges from underutilized factories and startup costs of moving from the current 45-nanometer manufacturing process to 32 nm, which will provide the foundation for the next generation of products.

Intel, like other tech companies, has been hit hard by the global economic recession. Intel reported sales declines in all regions, including a 24% drop in North America. The company gets 80% of its revenue from outside the United States.

One exception in the otherwise dismal PC market is mini-laptops, also called netbooks. Sales of the low-cost systems that sell for as little as $300 have been growing fast, and Intel has been gaining traction in the market with its Atom processors.

However, the processors sell for far less than Intel's other products and were not a major contributor to the bottom line. Intel said the total average selling price for its microprocessors was flat in the quarter, despite a 50% increase in revenue from Atom chips.

The bleakness of the PC market, including businesses and consumers, was reflected in the latest figures from researcher IDC. The firm reported this week that global PC sales fell in the fourth quarter for the first time in six years. Shipments dropped 0.4% from a year ago and 2.5% from the third quarter. The decline followed a half-dozen years of rising shipments, with the last five averaging increases of 15%.

While declining to provide a formal projection for the first quarter of this year, Intel said that for internal purposes, it's planning for sales of around $7 billion.

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