Intel to cut 3,000 after profits plummet 36%

As expected, Intel has eported disappointing results for its first fiscal quarter, prompting the chip maker to announce staff reductions of up to 3,000 employees. Intel's net income in the first quarter, ended March 28, 1998, tumbled 36% from $US2 billion in the same period a year ago to $1.3 billion. Andrew Grove, Intel's chairman and CEO, blamed the 'disappointing quarter' on a PC industry which 'seems to have gotten ahead of itself, building more product than end-customers purchased.'

As expected, Intel has eported disappointing results for its first fiscal quarter, prompting the chip maker to announce staff reductions of up to 3,000 employees.

Intel's net income in the first quarter, ended March 28, 1998, tumbled 36% from $US2 billion in the same period a year ago to $1.3 billion, the company said.

Revenues also were down, but not as much as Intel had warned they might be a month ago. Sales for the quarter totaled $6 billion, down 7% from the $6.4 billion reported in the year ago quarter, and down 8% from fourth quarter 1997 revenue of $6.5 billion, Intel said.

In March the company said its revenues could be down sequentially as much as 10%.

Intel attributed the shortfall primarily to weaker than usual demand for its processors by PC manufacturers.

"This was a disappointing quarter," Andrew Grove, Intel's chairman and CEO, acknowledged in a statement. "The PC industry seems to have gotten ahead of itself, building more product than end-customers purchased."

The situation is unlikely to improve until PC makers have whittled down a surplus of inventory currently filling their distribution channels, said Andy Bryant, Intel's CFO, in a teleconference with press and analysts. The inventory surplus means OEMs are not building as many new PCs, and therefore not buying as many Intel processors, he said.

As a result of that, Intel expects revenues for the second quarter to be flat or slightly down on the $6 billion reported today, while sequential revenue growth is unlikely to resume until the second half of 1998, Bryant said.

Today's results came as no surprise to analysts. Intel's earnings of 72 cents per share were exactly in line with a consensus estimate of analysts polled by First Call, and compare to $1.10 reported in the first quarter a year ago. First quarter income included a one-time charge to earnings of about $165 million, or 9 cents per share, related to Intel's acquisition of Chips & Technologies.

The reduction in workforce will occur "largely through attrition," though some layoffs should be expected, particularly in the third quarter, Intel said.

"We got ahead of ourselves in terms of adding heads and capital spending, so what were trying to do is take a breath and let business build back up," Bryant said.

Intel shrugged off suggestions that competitors like Advanced Micro Devices could eat into Intel's share of the market if they are able to meet volume targets with their lower-priced chips. Intel "fights a battle for every deal" it wins with an OEM's, and the company will continue to enjoy its lion's share of the PC business, Bryant said.

Asked if Intel would use price-cuts as a lever to meet possible challenges from the likes of AMD, Bryant said: "I don't know that I would ever use price as a lever on anything"

Revenues were down sequentially in the Americas, Japan and Europe, but were up slightly in the Asia Pacific, where sales were boosted by shipments of Pentium II chipsets to motherboard makers in Taiwan, Bryant said.

Research and development spending for the year is expected to be $2.8 billion, down from Intel's previous estimate of $3 billion, but up from 1997 R&D spending of $2.3 billion, Intel said.

Quarterly gross margins for the year are expected to hit their lowest in the second quarter, due primarily to components purchased for use in the companies new Single Edge Connector cartridge design for the Pentium II processor, the company said. The gross margin expected for 1998 is about 52 percent, Intel said.

Intel, in Santa Clara, California, can be reached at http://www.intel.com/.

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