Intel Doubles Earnings but Issues Warning
Intel Corp. reported a near-doubling of profit in its fiscal second quarter Tuesday, but the results were overshadowed by a warning that its gross profit margin for the rest of the year would be slightly lower than previously projected.
The world’s largest semiconductor maker attributed that to unexpectedly brisk sales of flash memory chips and motherboards, which are less profitable than its flagship chips. Although total sales and profit will rise as a result, the mix of products will make for a lower overall margin.
That news prompted investors to shave nearly 5% off the value of Intel shares. After losing 10 cents to close at $26.14 in regular Nasdaq trading, the stock fell as much as $1.29 to $24.85 in after-hours trading.
Santa Clara, Calif.-based Intel said its gross profit -- revenue minus the cost of goods sold -- for the full year would be about 60% of sales. That figure is a bit below the 62% forecast earlier because of growing sales of flash memory chips, which are used in cellphones and hand-held computers, and of motherboards, which connect computer microprocessors with surrounding electronics.
Those components have lower profit margins than the complex chips for PCs and server computers, such as Pentium and Itanium, for which Intel is best known.
“That’s the focal point for the sell-off,” said Tai Nguyen, a chip analyst in San Francisco with Susquehanna Financial Group, an institutional brokerage.
“If those businesses accelerate, that will deteriorate their gross margins further,” Nguyen said, though he added that he wasn’t concerned about Intel’s prospects for the rest of the year.
Intel said it earned $1.76 billion, or 27 cents a share, in its fiscal second quarter, up from $896 million, or 14 cents, in the second quarter of last year. Revenue in the three months ended June 26 rose 18% to $8.05 billion, compared with sales of $6.82 billion last year.
Revenue in the current quarter is expected to be $8.6 billion to $9.2 billion, compared with $7.83 billion a year earlier, the company said.
The results were also tempered by news that Intel’s inventory levels grew by about $427 million during the quarter, thanks to higher-than-expected production yields. As a consequence, Intel will slow the rate of growth of chip production in the second half, Chief Financial Officer Andy Bryant said in a conference call with analysts.
He called the current business environment “a little better than typical for the pattern of this period,” fueled in part by record sales in China.
Bryant also said Intel should continue to gain market share in chip sets -- basically, chips and circuitry with specific functions that support the main microprocessor -- in addition to flash memory and motherboards.
Intel took a $38-million charge for recalling some of its just-released Grantsdale chip sets for desktop PCs, which have special features for audio and video built in. Intel had to replace some components from outside suppliers but said it caught most of them before they reached customers.
“That’s disappointing, but what’s more important is whether they can sell inventory during the back-to-school season,” said Graham Tanaka of Tanaka Capital Management, which manages assets of about $150 million and owns about 100,000 Intel shares.
Whether Intel can make those sales depends on whether the Federal Reserve continues to raise interest rates, which would make companies and consumers more cautious about spending, Tanaka said.
