Intel Eases Gloom By Beating EstimatesIntel Eases Gloom By Beating Estimates

Having braced for market-shaking bad news from Intel, Wall Street was pleasantly surprised when the chipmaker reported earnings that beat analyst estimates by 2 cents and predicted revenue would remain flat in the coming quarter. Analysts applauded the strong performance in an unforgiving market, and Intel execs indicated that the worst could be behind them. None of this overshadowed the fact that profit was still down 76% from a year ago, while revenue dropped 24%.

CFO Andy Bryant told analysts during a conference call that the end of the coming quarter could prove to be the turning point for the battered chip industry, with demand expected to begin returning to normal levels in September. Bryant said that, so far, 2001 has been devoid of any major surprises, and that aside from disappointing profit margins driven in part by an aggressive price war, "the year's unfolding pretty much as we expected." Intel expects the slow server and workstation markets to reverse as it adopts a number of new technologies, including the much-ballyhooed Itanium line of semiconductors, as well as the recently released 1.8-GHz incarnation of the Pentium 4.

Analyst Frank Dzubeck, president of Communications Network Architects, says Intel and its competitors simply got caught by a sort of harmonic market convergence in recent quarters, as the slowing economy led to slumps in the formerly booming communications and mobile-phone markets, while chipmakers were saddled with bloated inventories. Intel, Dzubeck notes, had invested heavily in diversifying in both those areas. "It was a number of things coming together at the same time," he says. "The sun aligned with the moon and the stars, and boom."

Creative Strategies analyst Tim Bajarin says he had hoped Intel's results would be stronger by now, especially since second-quarter shipments often are an indicator of the fourth quarter. Bajarin says he expects the mobile-computing market to be key for Intel during the holiday season, but the prospects for a rebound in that time frame remain a question mark.

For the quarter ended June 30, excluding acquisition-related costs, Intel posted a profit of $854 million, or 12 cents per diluted share, on revenue of $6.3 billion. That compares with a profit of $3.5 billion, or 50 cents a share, on revenue of $8.3 billion during the same period last year. Complicating year-to-year comparisons was the fact that Intel realized investment gains of $2.1 billion for its second quarter last year, while this year those gains totaled just $3 million. Intel expects third-quarter revenue to be between $6.2 billion and $6.8 billion.