News Feature

Intel Profit Down 39 Percent

January 17, 2007 — CIO —

Still reeling from the effects of a corporate reorganization that included heavy layoffs, Intel reported a profit of US$1.5 billion for the fourth quarter, down 39 percent compared to that period last year.

The company posted quarterly earnings of $0.26 per share on revenue of $9.7 billion. That revenue was down 5 percent from the same quarter last year, but came in just above Wall Street estimates of $0.25 per-share earnings and $9.44 billion revenue, according to analysts polled by Thomson First Call. However, Intel said its earnings were inflated by about $0.01 per share because of one-time actions in its reorganization, such as the sale of its communications and application processor unit to Marvell Technology Group and the layoffs of 10,500 workers.

Intel had lost significant market share to rival Advanced Micro Devices (AMD) over the year, but many observers felt the company had rebounded in recent months with the launch of many new chips, including the Core 2 Duo and quad-core Xeon chips.

Intel said its sales of microprocessor units reached a record high, led by flash memory units. But that success was offset by soft sales of chipset and motherboard units, Intel said in a release. Overall, the company said it had a poor performance because it was unable to reduce its fixed costs or forecast product demand, while its competitors launched new products and exerted price pressure.

As expected, the company’s profit also slumped when comparing the 2006 fiscal year to 2005. Intel reported an annual profit of $5 billion, which was 42 percent below its number last year.

For fiscal 2006, Intel posted revenue of $35.4 billion—9 percent less than fiscal 2005—and earnings of $0.86 per share—39 percent less than 2005. The figures were slightly higher than analysts’ expectations of $35.13 billion annual revenue and $0.84 earnings per share, according to Thomson.

The annual numbers fell short of Intel Chief Executive Paul Otellini’s own estimate, however. When he announced his plan to restructure the company in April, Otellini predicted the company’s operating income would tumble from $12.1 billion in 2005 to $9.3 billion in 2006. In fact, it reached only $5.7 billion.

Intel survived "a challenging year" in 2006, Otellini said during a conference call with investors on Tuesday. Even one of its bright spots—strong sales of its new Core 2 Duo processor—was offset by a greater market trend from desktop PCs to notebooks.

The company will produce better results in 2007, he promised. The reorganization plan has already cut Intel’s employee headcount from 102,500 in the middle of 2006 to 94,100 at the end of the year. Once the company is no longer paying the cost of those extra workers, it will reap greater profits from new technology launches, Otellini said.

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