KEY POINTS:
SAN FRANCISCO - Intel Corp, the largest maker of computer processors, posted a rise in second-quarter earnings today, but profit margins missed the company's target and its shares fell nearly 5 per cent.
"The gross margin number is a surprise," said JoAnne Feeney, an analyst with FTN Midwest
Securities, adding that Intel did well in revenue and earnings per share but that she wanted to better understand a decline in chip prices.
Gross margin in the second quarter was 46.9 per cent, short of the company's forecast of 48 per cent. Intel said it expected the margin to be 52 per cent, plus or minus "a few points" in the third quarter.
"We did see more pricing pressure than we expected, and that depressed margin by 1 point," Intel Chief Financial Officer Andy Bryant said, adding that weakness in flash memory also contributed to the low margin.
Intel has clawed back market share from smaller rival Advanced Micro Devices Inc. thanks to a slate of new processors and price cuts on older ones. AMD has fought back by cutting prices, and it is set to start selling a new processor in August.
"They (Intel) had lower average selling prices, which I'd say reflects their move to sell older product or could be due to a more competitive AMD," said Jane Snorek, an analyst with First American Funds.
Margins also could have been hit by a shift away from more profitable notebook computers toward desktops, as well as a faster roll-out of advanced production techniques, which carry high start-up costs.
"We know they've been accelerating that and it does affect gross margin. And the fact that they are predicting such a large jump in gross margins, that would come with higher volumes following the ramp," Feeney said.
Intel also said it expected revenue for its current quarter to be US$9 billion ($11.52 billion) to US$9.6 billion, compared with analysts' forecasts of US$9.1 billion to US$9.9 billion, as compiled by Reuters Estimates.
For its second quarter, Intel posted net earnings of US$1.3 billion, or 22 cents per share, compared with US$885 million, or 15 cents per share, a year earlier.
Excluding a special gain of 3 cents per share related to a tax item, Intel's profit was 19 cents per share, in line with the average Wall Street expectation.
Revenue was US$8.7 billion, up 8 per cent from a year earlier, and higher than the US$8.5 billion forecast by Wall Street.
Intel shares, which rose 1.5 per cent in regular trading to close at US$26.33 on Nasdaq, fell 4.9 per cent to US$25.05 in extended trading after the results were announced. Shares in Intel have risen 29 per cent so far this year, compared to a fall of 22 per cent in those of AMD.
Comparing Intel's earnings per share with what is expected from AMD when it reports on Thursday shows clearly who is winning the market-share war, American Technology Research analyst Doug Freedman said.
"Clearly, there's no way they (Intel) haven't fended off their rival if they are printing 22 cents in profit and the other (AMD), we're hoping best-case, will be posting a 50 cents loss," Freedman said.
"It's pretty clear who's won the battle."
- REUTERS
