Intel Issues Earnings Warning

Facing increased competition throughout its line of processors, chip giant Intel warned on Friday that its first-quarter revenue would be lower than expected.

Intel, based in Sunnyvale, California, predicted its first-quarter revenue would be US$8.7 billion to $9.1 billion. That compares to the previous expectation issued in January, when it reported fourth-quarter 2005 results of $9.1 billion to $9.7 billion.

In a statement, the company said the shortfall was “primarily due to weaker than expected demand and a slight market segment share loss.”

Indeed, Intel’s warning on softer earnings was in line with a general semiconductor market downgrade issued earlier this week by Citigroup.

But analysts said the problem may be closer to home.

“The momentum right now is favoring AMD. That seems to have been the case for six months in terms of people being aware of it, but more like 18 months in terms of AMD having an impact on the market,” said Roger Kay, an analyst with Endpoint Technology Research Associates.

A number of investment analysts are starting to urge caution on Intel. Last week, for example, investment firm ThinkEquity Partners lowered its Intel rating to “sell” from “accumulate.” ThinkEquity said that Intel will have to cut prices as it faces increasing competition, especially in servers, where Advanced Micro Devices has made inroads with dual-core chips.

“It sounds like a cliche to say they’re [AMD] firing on all cylinders, but with Opteron they have price, performance and thermals all working in their favor. That was a technical achievement. Intel bet on simpler technologies that were easier to implement, and it turned out not to pay off so well,” Kay said.

In the past, AMD has been especially vulnerable to Intel’s Centrino processor for applications in low-power notebooks. But today, Kay said, AMD enjoys a technology lead throughout its product line, from Opteron to Athlon and — most recently — Turion, aimed at low-end machines.

Last week, Lenovo Group Ltd. dealt a blow to Intel when it offered its customers a choice between AMD and Intel chips in its new 3000 series desktop machines.

“AMD has a good story: same performance, better price. With Opteron, they can say ’better performance, better price, and oh, by the way, better thermals.’ And now it looks like Turion is doing well in retail sales.”

Intel will show how it plans to close the technology gap at its Intel Developer Forum trade show in San Francisco next week. The company is expected to announce a move to 65-nanometer process technology and a shift from dual-core to multicore processing.

The true test of that strategy will be if traditional users of Intel chips like Dell and Toshiba America continue their resistance to producing laptops and desktops with AMD processors, Kay said. Dell has been stung by Intel’s lag in the technology race recently, as some customers have chosen AMD-powered laptops from Hewlett-Packard, Lenovo and Acer.

Intel revenue has disappointed investors lately. Fourth-quarter 2005 revenue came in about $1 billion short of analysts’ expectations. The first-quarter 2006 revenue guidance given in January, though higher than its forecast Friday, was itself lower than the $10 billion that analysts polled by Thompson Financial were expecting up to that time.

In reaction to the Intel announcement Friday morning, company shares (INTL) declined by $0.14 to trade at $19.75. The news dragged down share prices of other IT companies including other semiprocessor companies. AMD shares, however, were trading at $41.48, $0.15 above the opening price, by late Friday morning.

For related coverage, read Microsoft Origami at CEBIT, Open Source Needs Big Vendors and India Lures High-Tech Manufacturers.

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-Ben Ames, IDG News Service