San Francisco, Oct. 16: Striking a sour end-note to a day when the stock market rallied, the Intel Corp., the world’s largest maker of computer chips, reported earnings that sharply missed Wall Street expectations. The company said its fortunes were not likely to turn around next quarter, and it was not seeing a larger economic recovery.
“This should unfortunately short-circuit the rally—big time,” said Charlie Glavin, an analyst with ThinkEquity Partners, an investment research firm.
For its part, Intel attributed its performance to the fact that demand for semiconductors was on the low end of seasonal patterns, and also to the company’s increasing difficulty in finding ways to cut costs to cope with the lacklustr economic conditions.
Intel said that despite the weakness in its financial returns, it pushed ahead with the introduction of 18 new semiconductor products during the quarter and gained share in several crucial markets.
Still, during the third quarter, sales were $ 6.5 billion, which was on the low end of its earlier projections. Its profits pro forma—which excludes acquisition-related costs—were 11 cents a share. That was 2 cents lower than the pro forma consensus projections of Wall Street analysts, who had been projecting sales of $ 6.9 billion.
The sales for the quarter were just 3 per cent higher than the company had during its second quarter—low by historical standards.
But the number that stood out both for Intel and the analysts who follow it were its gross profit margins, which measure a company’s profits after subtracting the cost of producing goods. That figure was 49 per cent, on the low end of the company’s earlier estimates. In more profitable times, Intel’s gross margins had been in the high 50s, and even the low 60s.
Andy Bryant, the chief financial officer, said in an interview that the company had hoped to improve its gross margins but had been unable to cut costs as much as it intended—and as much as it had been able to in previous quarters. “We were looking to take 3 to 4 percent out of manufacturing,” Bryant said. “We got next to none. We finally hit the wall.”
The company projected that its gross margins for the current quarter—the company’s fiscal fourth quarter—would remain around 49 per cent. And the company said that its sales for the fourth quarter would be $ 6.5 billion to $ 6.9 billion, which, even at the high end, would represent historically modest growth. “What we’re seeing is the low end of seasonal demand,” Bryant said.
He said that as part of a continuing effort to reduce its work force, the company plans to cut 4,000 of its 82,000 jobs during the current quarter.
“The economy is not recovering, at least in our industry,” Bryant said, adding that “until we see momentum with economic recovery,” the company will remain vigilant about keeping costs down.