News Column

Intel Slump in Line With Wall Street's Expectations

Jan. 18, 2013

Steve Johnson, San Jose Mercury News

Intel

Despite declining sales and a big drop in profit, Intel (INTC) exceeded analysts expectations with its quarterly earnings report on Thursday.

Declaring a fourth-quarter profit of $2.5 billion -- down 27 percent from the same period a year ago -- the company said it earned 48 cents a share on sales of $13.5 billion, a 3 percent drop from a year ago. Analysts surveyed by Thomson Reuters had expected 45 cents a share on sales of $13.5 billion.

For the year, Intel said its profit fell 15 percent from what it had been in 2011 to $11 billion. It's 2012

revenue of $53.3 billion was down about 1 percent from the previous year and just shy of the $53.4 billion analysts had predicted.

"The fourth quarter played out largely as expected as we continued to execute through a challenging environment," said Intel CEO Paul Otellini in a company statement. "As we enter 2013, our strong product pipeline has us well positioned to bring a new wave of Intel innovations across the spectrum of computing."

Considered an important barometer of the tech industry's health, the Santa Clara company routinely has turned in stellar earnings since it was founded in 1968. But in recent years, its sales have leveled off as demand for its

microchips has weakened. While some of that can be attributed to the sluggish global economy, analysts have been especially worried about Intel's heavy reliance on sales of personal computers.

The company's brainy microprocessors are used in about 80 percent of PCs. But those devices have become less popular, as consumers have shifted to smartphones and tablets. With some analysts estimating that one less personal computer is sold -- or "cannibalized," as experts refer to it -- for every two and a half tablets that are purchased, Intel has been eager to get its chips into mobile devices.

Despite having some successes in that effort, the vast majority of smartphones and tablets use chips made by other companies with an alternative design from British firm ARM Holdings, which traditionally have been more energy efficient and provided longer battery device than Intel's circuits.

Some experts see several factors that could improve Intel's business this year.

In a recent note to their clients, J. P. Morgan analysts predicted the tablet cannibalization of PCs would slow in a few months. Moreover, they said, "there has not been a meaningful PC upgrade cycle since Windows 7 launched in July 2009, and many customers will be forced to upgrade their PCs," triggering more chip sales for Intel.

But in a separate note this week, Raymond James analysts worried that even if Intel can get more of its chips into smartphones, it will need to cut the price of those chips to compete with the relatively inexpensive ARM variety. That would eat into Intel's revenue, they said, adding that Intel faces a similar problem as low-priced ARM chips make headway into computer servers, another market Intel has dominated.

In addition, some analysts complain that Intel hasn't been as innovative as it needs to be.

During the recent Computer Electronics Show, the few Intel-based smartphones the company showed off "generally fell flat with investors," concluded analysts with FBR Capital Markets in a note Wednesday. "If Intel wants to be viewed as a serious competitor in handsets, it needs to launch serious products."

Another looming concern for Intel is who will replace its 62-year-old CEO Otellini, who is leaving in May, three years short of the firm's mandatory retirement age. Otellini, who became Intel's fifth chief executive in 2005, has predicted his successor will be selected from within the company. But when he announced in November that he was quitting, industry observers were surprised by the disclosure that the board for the first time would formally consider filling the position with an outsider.


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Source: (c)2013 San Jose Mercury News (San Jose, Calif.) Distributed by MCT Information Services


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