Intel Q2 earnings fall short

Intel's second-quarter income grew 49% from a year ago to reach $US1.7 billion, although earnings per share fell short of analyst expectations. Increased sales of its Celeron chips, which are targeted at the low-end market, caused average selling prices to slip.

Intel's second-quarter income grew 49% from a year ago to reach $US1.7 billion, although earnings per share fell short of analyst expectations.

Earnings per share for the quarter, which ended June 26, 1999, were 51 cents, up from 33 cents per share a year ago and down from 57 cents per share in the previous quarter. Thirty-one brokers polled by First Call produced a consensus estimate of 53 cents per share.

Second-quarter revenues were $6.7 billion, up 14% from $5.9 billion a year ago. Income totaled $1.7 billion, up 49% from $1.2 billion in the year-ago quarter, but down 13 percent sequentially, Intel said.

Intel managed to regain some lost share during the period in the market for low-cost PCs, the company said. But increased sales of its Celeron chips, which are targeted at this low-end market, caused average selling prices to slip, Andy Bryant, Intel's chief financial officer, said in a teleconference.

"Our average selling price fell below the narrow range we have seen in the past year or two, principally due to the gains we have seen in our low-end business," Bryant said.

Rival Advanced Micro Devices Inc. (AMD) last year managed to take some business away from Intel, especially in the U.S. retail market for low-cost systems. Intel has made it a priority to recover that lost market share. Meanwhile, AMD is due to announce its financial results tomorrow.

Overall, shipments of Intel processors and motherboards were down sequentially. Chip set sales were more or less flat, while sales of embedded processors, microcontrollers and flash memory chips increased, Bryant said.

"We are pleased with our accomplishments this quarter. We made progress positioning Intel for the evolving Internet economy," Craig Barrett, Intel's president and chief executive officer, said in a statement issued today.

Pentium III shipments tripled between the first and second quarters of this year, and the Pentium III chip is likely to start outselling the Pentium II during the third quarter, making it the number-one selling processor in the world, Bryant said.

Intel has begun shipping 600MHz versions of the Pentium III to PC manufacturers, in anticipation of that product's launch to customers next month, said Paul Otellini, executive vice president of the Intel Architecture Business Group.

The first samples of Intel's long-awaited 64-bit processor, dubbed Merced, are scheduled to ship to manufacturers for testing later this year, Otellini said. After initial delays, Merced is due to begin shipping to customers in servers and workstations next year.

Geographically, sales in all areas except the Americas were lower in the second quarter of this year than in the first, Otellini said.

Intel's bottom line has been largely unaffected by the trend among ISPs (Internet service providers) to offer "free" PCs to users along with a service subscription, Otellini said. The subsidies in such cases are typically carried by the ISPs and other service providers, he added.

Looking ahead, Intel expects third-quarter revenues to be up slightly from the second quarter, fueling a strong second half of the year, Bryant said. The company's gross margin percentage remained flat in the second quarter thanks to cost improvements and manufacturing efficiencies, offsetting the impact of the decline in average selling prices, the company said.

The results were announced after the close of market today. Intel's stock closed at $65.38, down from yesterday's close of $65.44, and down from Intel's 52-week high of $71.84.

Intel, in Santa Clara, California, can be reached at +1-408-987-8080,or at http://www.intel.com/.

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