Intel Outlook: Some Strength, No Recovery

Number one chipmaker Intel has announced the first quarter is unfolding largely as expected, but cautioned that while sales of PC chips are strong, there is little evidence of a real recovery.

Intel also said a move to raise the price of its flash memory products, by as much as 40 percent in some cases, seems to have resulted in a loss of market share, most likely to rival AMD.

In addition, the company refined its revenue guidance, saying it will bring in between US$6.6 billion and $6.8 billion. Earlier, when it reported fourth-quarter earnings, the Santa Clara, California-based firm had said sales for the current quarter, which ends March 29th, could range as high as $7 billion.

Flat Sales

The revision means sales will be lower than in the fourth quarter and approximately flat from last year. Sales of PC chips were up, moving above expectations, but the company said the increase represents more of a blip than a long-term trend.

“I don’t see any signs of an economic recovery,” Intel CFO Andy Bryant said in a conference call. “It just isn’t enough to see any kind of breakout or get too excited.”

Bryant said Intel’s move to raise flash memory chip prices reflected its belief that demand for such chips would trend toward more advanced technology, as cell phones and PDAs increasingly included color screens and other features. Flash products make up about 8 percent of Intel’s total sales.

Followed Instincts

“We knew there would be some loss of units, but at this point, it looks like we paid more than expected to follow our instincts on pricing,” Bryant added. “We still think we were right. This would be the wrong time to give up, and we are going to stay the course.”

While market-share data will not be available until all companies report for the quarter, he said, “My instincts say there’s a share loss in the flash business.”

Share and Share Alike

That news was almost certain to spook investors, who have watched Intel control costs and take other steps to position itself for a strong recovery, according to Morgan Stanley analyst Mark Edelstone.

“A loss of share, even in a small corner of the business — that’s not something anyone wants to see,” Edelstone told the E-Commerce Times. “Intel may be forced to reconsider the pricing decision, but I’m sure they’re going to see demand pick up and make that unnecessary.”

Staying the Course

Intel held its guidance for all of 2003 steady. Shares of Intel were down nearly 5 percent in Friday morning trading to $15.95.

Early this year, Intel sparked some optimism with its fourth-quarter earnings, beating most expectations. But it immediately cautioned that 2003 would not be a continuation of that trend.

But others say chips are due for a rebound. Last week, the Semiconductor Industry Association said worldwide chip sales were up 22 percent in January over 2002 levels, driven by wireless devices and what the group termed “a recovery in information technology spending.”

The SIA estimates that as many as 180 million older personal computers are due for upgrades, promising a strong uptick in the highly cyclical chip business.