Despite 90% drop in income, Intel looks to invest
E-Mail Article
Printer-Friendly
3-Column Format
Translate
Share Article
Text Size
MOUNTAIN VIEW, California: Intel, the world's largest chip maker, plans to deal with a severe decline in computer hardware sales in its usual fashion: by continuing to spend vast amounts of money on advancing its manufacturing facilities.
Like many companies tied to the PC market, Intel's immediate financial situation is deteriorating.
The company, based in Santa Clara, California, on Thursday reported a 90 percent drop in net income to $234 million, or 4 cents per share, for the fourth quarter. In the same period last year, it earned $2.3 billion, or 38 cents per share. Intel said the most recent quarter's results, which were in line with Wall Street's expectations, included a billion-dollar reduction in the carrying value of the company's investments in Clearwire.
Intel also reported a 23 percent drop in fourth-quarter revenue to $8.2 billion.
"The economy and the industry are in the process of resetting to a new baseline from which growth will resume," said Paul Otellini, chief executive at Intel, in a statement. "Intel has weathered difficult times in the past, and we know what needs to be done to drive our success moving forward."
Today in Technology & Media
Otellini went on to say Intel would continue to invest in manufacturing technology as it looks to outpace rivals.
Intel warned its investors of the sharp drop in revenue earlier this month. The double-digit revenue decline proved more dramatic than Intel projected in mid-November, reflecting worsening conditions for PC equipment sellers.
According to analysts following the PC industry, Intel and its peers are trying to cope with a pullback in orders from the channel partners and retailers which sell computers. Many of these cash-strapped companies were affected by the credit crunch and were forced to reduce their inventory and curtail future orders.
In addition, many companies in the United States shut down their operations in December, requiring employees to take time off to save payroll expenses. A similar situation is now occurring in China ahead of the start of the Chinese New Year later this month.
"There is nothing going on right now," said Auguste Richard, a chip analyst with Piper Jaffray. "This is as dark and deep as it goes, with companies not buying or selling anything."
Intel's results reflect the depth of the slump. In the last 25 years, Intel has faced a year-over-year revenue drop of this magnitude in the fourth quarter only twice — during the dot-com bust in 2001 and in 1985. And the 19 percent sequential plunge in revenue during the fourth quarter of 2008 is far more severe than the two earlier occurrences.
During previous slumps, Intel has continued to invest in the manufacturing facilities which have set it apart from rivals. And the company appears committed to following that model.
According to Richard, Intel has ratcheted down the production of processors at its current chip manufacturing plants, known as fabs, but is continuing to spend money on building new plants that will produce power-saving chips with finer features. Intel expects to introduce these new chips later this year and is well ahead of rivals with the advanced production techniques.
"Intel is not going to let up on that, and no one else can keep up," Richard said. "Intel's competitive advantage is their manufacturing and not design, and that's how they maintain profits and market share."
Coming out of the last downturn in 2001, Intel was saddled with a number of underperforming businesses, ranging from an Internet hosting operation to lackluster chips aimed at the mobile device market. It has spent the last few years shutting down and selling off these operations, leaving it in better shape to withstand the current economic slump.
"They have been through these things before and entered this a lot leaner than in other downturns of this magnitude," said Ross Seymore, a chip analyst at Deutsche Bank Securities.
Other players in the PC market have been reeling from slumping sales and may be forced to reevaluate their approaches to new businesses.
Seagate this week followed the lead of fellow hard-drive maker Western Digital by announcing layoffs that will affect thousands of workers. The company also dismissed its chief executive, William Watkins, replacing him with company chairman Stephen Luczo. Seagate is currently playing catch-up on new hard drives that make use of flash memory.
Nvidia, the world's largest producer of graphics chips, also drastically revised its fourth-quarter forecast this week, saying it expects sales to fall 40 percent to 50 percent below the third-quarter level of $898 million, rather than the 5 percent drop it previously expected.
Latest News
