Intel profits slump but future looks brighter, CEO says

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Intel on Tuesday reported a sharp drop in revenue and profit for the first quarter, but the company's CEO said the PC industry is showing signs of recovery.

"We believe PC sales bottomed out during the first quarter and that the industry is returning to normal seasonal patterns," Paul Otellini, Intel's president and CEO, said in a statement.

The company did not provide guidance for future quarters, however, citing continued economic uncertainty.

Revenue for the quarter, ended March 28, was US$7.1 billion, down 26 percent from the first quarter of 2008 but still slightly ahead of analyst estimates, according to Thomson Reuters.

Net income was $647 million, down 55 percent year-over-year, with earnings per share of $0.11. That too was ahead of expectations; analysts had predicted earnings of just $0.03 per share. Intel said some restructuring and asset impairment charges had been lower than expected.

After riding a surge in popularity of netbooks, Intel saw revenue from its Atom microprocessors and chipsets drop sequentially. Atom sales fell 27 percent during the quarter to $219 million, Intel said.

The company saw important trends in the PC market that show order patterns reaching normal levels, Otellini said. Desktop sales bottomed first, but reached normal levels in early February. The desktop inventory was not excessive and cleared quickly.

In contrast, it took a longer time for consumer laptop demand to reach normal patterns as the backlog was much larger. That hurt Intel's revenue as chip supply for laptops stagnated until the excess inventory was cleared out, Otellini said.

Revenue from netbook chips was also stymied as a result of excess inventory, Otellini said. The inventory has now cleared and Atom sales should continue to grow, which could be an incremental revenue opportunity for Intel.

Demand for enterprise laptops slowed during the entire quarter due to constrained budgets and reduced spending by companies, Otellini said. However, demand could increase as the end of the three-year upgrade cycle for enterprise laptops approaches.

Overall laptop shipments are expected to reach normal patterns during this quarter, Otellini said.

Despite Intel's rosy view of the market, one analyst saw some negatives.

Intel painted a picture of a PC industry on the path to growth again, but it will face challenges to grow its revenue and maintain profitability in 2009, wrote John Spooner, senior analyst at Technology Business Research, in a research note. Customers may choose PCs outfitted with low-priced chips like Atom and Celeron, which could deliver thin margins for Intel.

"The new realities of the market will exert considerable pressure on Intel's processor average selling prices as end-customers, both businesses and consumers, look for the greatest bang for the buck when ... they move to purchase new PCs," he wrote.

Intel has adapted well to the recession, according to Otellini, through "disciplined execution and agility." It launched new Nehalem server chips during the quarter, as well as new Atom chips, and revised its manufacturing road map with a faster shift to 32-nanometer production.

The server chip launch was significant as it was the single largest increase in server performance that Intel has delivered, Otellini said. Over 230 server designs from server makers are now ready to ship, he said. Intel expects to ship its 1 millionth chip based on the Nehalem microarchecture this week, which includes the Core i7 and Xeon 5500 Nehalem chips.

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