Intel 3Q profit down 14 pct, sees slow 4Q

Intel third-quarter profit down 14 pct as PCs slump, sees slow fourth quarter as well

Associated Press
Intel sees weak 4Q, little Windows 8 bounce
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FILE - In this Thursday, July 12, 2012, file photo, Intel Core i7 …

NEW YORK (AP) -- Intel Corp., the world's largest chipmaker, said net income fell 14 percent from last year in the latest quarter, and it's looking at tough conditions in the new quarter.

Intel blames a difficult global economy for declining sales, but analysts believe a shift in spending from PCs to tablets and smartphones may be contributing. Still, the company beat analyst expectations for the latest quarter, after the company had lowered expectations twice.

The Santa Clara, Calif., company said its third-quarter net income was $2.97 billion, or 58 cents per share, down from $3.47 billion, or 65 cents per share, a year ago.

Excluding the amortization of some acquisition-related assets and related tax effects, Intel earned 60 cents per share, handily beating the average estimate of analysts polled by FactSet, at 50 cents per share.

Revenue fell 5.5 percent to $13.5 billion. Analysts were expecting $13.22 billion, in line with the midpoint of Intel's own forecast.

Revenue from the side of the business that makes PC chips fell 8 percent from a year ago, in line with reports from research firms IDC and Gartner that said worldwide PC sales fell more than 8 percent from a year ago. Competitor Advanced Micro Devices Inc. is bearing more than its share of that decrease, however. It has said sales fell about 10 percent in the latest quarter.

Intel said it expects about $13.6 billion in fourth-quarter revenue, below the analyst forecast of $13.7 billion. More significantly, it said it expects a gross margin of 57 percent, well below the average for the last three years of 64 percent. The gross margin is Intel's revenue minus the cost of making and selling the chips, so the lower forecast points indirectly to lower profit in the fourth quarter. The reduction is due to lower utilization of its factories, and a shift toward to a new processor technology, which will idle some factories for retooling.

Intel's stock fell 75 cents, or 3.3 percent, to $21.60 in extended trading, after the release of the results. In regular trading, the shares rose 2.9 percent. The stock hit a 52-week low of $21.40 on Friday.

The shift from PCs and toward tablets is a threat to Intel because most tablets don't use Intel processors. Instead, they use cheaper chips similar to the ones found in smartphones.

Intel wants to get its chips into tablets. The launch of Windows 8, Microsoft's new operating system, on Oct. 26 gives it a chance to do that, since the software is designed both for PCs and tablets.

But Intel's expectations for the Windows 8 launch are muted. In fact, Intel expects a slower holiday season than usual. Normally, PC makers ramp up production for the holiday season, but Intel CEO Paul Otellini said he expects that increase to be halved this year, in part because manufacturers are cautious about how consumers will take to Windows 8.

In terms of how users are expected to control the PC, the new software is a radical departure from previous Windows versions.

"I'm very excited about this new operating system," Otellini said, but "we haven't had a chance to really judge how consumers will embrace this in the PC space or not."

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