Intel Shares Slip Ahead of 1Q Earnings Report
In April 2003, Intel Corp. rival Advanced Micro Devices Inc. released "Opteron,"
a revolutionary microprocessor for server computers that ran in the standard
32-bit mode or in a more advanced 64-bit mode.
It would take Intel a year to match the dual-performing chip, and by then Opteron,
and a follow-on 64-bit processor for desktop computers, was already enjoying
brisk sales. The competition between the two hasn't been the same since.
On Wednesday, the world's biggest chipmaker reports first-quarter results,
and investors will find out if it's regaining its performance edge against its
smaller rival. In advance of the report, Intel shares slipped 15 cents to $19.24
on the Nasdaq Stock Market.
Santa Clara-based Intel also is expected to offer important clues about the
extent of market share losses to AMD, whether PC demand is below normal expectations
and the effect aggressive price cuts will have on profit, analysts said.
Last month, Intel cited a "slight" loss of market share and weaker
sales of microprocessors as it lowered its revenue forecast to between $8.7
billion and $9.1 billion, down from a previous estimate of $9.1 billion to $9.7
The $400 million reduction at the low end of the forecast was one of Intel's
biggest since 2001, when the entire tech industry was sinking into recession.
This time around, Intel can blame most of its troubles on slack demand for
PCs and outperforming chips from AMD, analysts said. On Tuesday, Intel spokesman
Tom Beermann declined to comment before the earnings report.
After sustaining market share losses to the Sunnyvale-based company for several
quarters, Intel is slashing chip prices to win back sales. Analysts are concerned
that will chip away at profit.
"Intel's costs are largely fixed, and we believe pricing cuts will eat
away at margins," Eric Ross, an analyst for ThinkEquity Partners, wrote
in a report.
Other analysts, including Michael Masdea of Credit Suisse, concurred and said
Wall Street may need to lower its 2006 earnings targets to below $1 a share,
compared with a consensus estimate of $1.04 in a Thomson Financial survey of
As AMD steals sales and Intel focuses on a fleet of new products scheduled
for release in the second half of 2006, analysts are also concerned that Intel's
inventory of older chips is growing.
David Wong of A.G. Edwards wrote that first-quarter inventory could rise by
"several hundred million dollars" and possibly by that much again
in the current period. Inventory stood at $3.1 billion at the end of 2005. That
would require Intel to write down the value of excess chips by taking a charge
against profit, either in the March or June quarter, Wong wrote.
Last month, Intel unveiled details about a new chip designed to stem AMD's
performance edge in microprocessors. The new technology, dubbed the "Core"
microarchitecture, will start shipping in the third quarter in a desktop chip
code named "Conroe" and a server chip called "Woodcrest."
It will debut in chips for mobile PCs in the fourth quarter.
"Intel has been on its heels in the desktop and server markets for two
years now, and the desktop Conroe and server Woodcrest processors represent
the first real competitive response to AMD's success," Merrill Lynch analyst
Joe Osha wrote in a research report.
Osha questioned whether Intel can return to its dominance in the chip industry
with Intel Chief Executive Paul Otellini at the helm. Osha invoked the name
of a former IBM Corp. CEO who is credited with restructuring that company in
"We think that Intel is in need of an overhaul similar to what Lou Gerstner
undertook at IBM following that company's crisis, and we're not yet convinced
that Paul Otellini, a career Intel man, is the guy to do it," Osha said.