Intel's Q3 profit plunges 77%, IBM revenue drops

Intel this week said its third-quarter net income plunged 77% before acquisition-related costs, but said it is confident it will see high growth when the economy recovers.

          Intel this week said its third-quarter net income plunged 77% before acquisition-related costs, but said it is confident it will see high growth when the economy recovers.

          Meanwhile IBM reported a 19% decline in third-quarter 2001 net income over the year-ago period, while its revenue dropped 6%, to $US20.4 billion.

          Intel net income for the quarter ended September 29 was $US655 million, down from $US2.9 billion a year ago, the chip maker said in a statement. Earnings were $US0.10 per share, down from $US0.43 per share in the third quarter of 2000, and in line with the consensus estimate of analysts polled by Thomson Financial/First Call.

          Revenue for the quarter was $US6.5 billion, down 25% from the year earlier, Intel said.

          Including acquisition related costs, third-quarter net income was $US106.0 million, a 96% drop from the previous year. Earnings per share including the additional costs were down 94%, to $US0.02 per share, the company said.

          Intel's president and CEO Craig Barrett called the results "solid" in a turbulent environment, and said that both revenue and microprocessor units were up from the previous quarter.

          Economic conditions remain weak worldwide, however, and the company expects to see only "moderate" growth in both its processor and flash memory business in the fourth quarter, Barrett said in the statement.

          Intel now expects fourth quarter revenue to be between $US6.2 and $US6.8 billion, Andy Bryant, Intel's chief financial officer, said in a conference call with analysts and reporters. Analysts had been expecting sales of $6.8 billion for the fourth quarter, according to a First Call estimate.

          Third-quarter unit shipments grew sequentially in most major product categories, including processors, chip sets, motherboards and networking components, Bryant said.

          Geographically, Intel saw revenue rise sequentially in every market except Japan, said Paul Otellini, general manager of the Intel Architecture Group. "Most mature markets in Asia continued to be soft, while emerging markets continued to grow," he said.

          At IBM, hardware revenue dropped 21% from a year ago, a decline driven by weak PC sales, the Armonk, New York-based company said in a statement. Software revenue grew 10% percent, however, to $US3.2 billion, and IBM's Global Services unit reported 5% growth, to $US8.7 billion.

          The quarter demonstrated an "acceleration" of a fundamental shift in buying behaviour, with customers spending less on hardware and more on services and software, IBM chairman and CEO Lou Gerstner said in the statement.

          In one bright spot for its hardware division, sales of IBM's zSeries servers grew strongly during the quarter, Gerstner said, as customers consolidated servers into more powerful mainframe computers. IBM's iSeries portfolio of mid-range servers also showed sales growth, while revenue from its high-end pSeries declined. IBM blamed the drop on customers waiting for its p690 Unix server, formerly codenamed Regatta, which went on sale earlier this month.

          IBM earned $US0.90 per share, slightly topping analyst expectations. The consensus estimate of analysts surveyed by Thomson Financial/First Call was for earnings of $US0.89 per share. The company's third-quarter net income was $US1.6 billion, down from $US2 billion in the year-ago quarter.

          The September 11 attacks on the US delayed the closing of some contracts, primarily among domestic customers, according to IBM. Financial services and insurance sector deals were hardest hit, and already-slow orders for PCs and microelectronics products dried up even further, Chief Financial Officer John Joyce said in a conference call with analysts.

          IBM is optimistic about growth in its outsourcing business during the next quarter, according to Joyce, who pointed to "a very strong pipeline of opportunity."

          The most glaring red ink on IBM's balance sheet was in its Personal Systems division, including notebook and desktop PCs. Discounting currency fluctuations, PC revenue dropped 29% year-over-year and declined 9% from 2001's second quarter, Joyce said. To compensate, IBM slashed plant inventories by 25% and channel inventories by 35%.

          IBM's Microelectronics division also posted a sharp decline, of 30%, from last year's third-quarter. IBM cited a severe downturn in the semiconductor industry as a factor, and said it expects revenue from the division to pick up after the fourth quarter of 2001.

          Joyce avoided making firm predictions about the future of the economy -- and about IBM's short-term sales outlook.

          "What's the timing and strength of the recovery?" he asked rhetorically during the call with analysts. "That's a call I'm going to leave to you. ... When the economy recovers, we expect to be in an even stronger competitive position, and to return to our model of high single-digit revenue growth."

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