Intel Forecast Tops Estimates; Spinoff Curbs Profit (Update1)

By Ian King

April 15 (Bloomberg) -- Intel Corp., the world's biggest chipmaker, reported a 12 percent drop in profit on costs to spin off a business. Sales this quarter may top analysts' estimates as the company takes customers from Advanced Micro Devices Inc.

First-quarter net income declined to $1.44 billion, or 25 cents a share, from $1.64 billion, or 28 cents, a year earlier, Santa Clara, California-based Intel said today in a statement. Intel spent $300 million in the period to shed a money-losing business. Sales gained 9.3 percent to $9.67 billion.

The sales forecast reassured investors that the market for personal-computer chips hasn't stalled. Advanced Micro, Intel's biggest rival, said last week that its first-quarter sales were about $1.5 billion, missing its projections. Some analysts were concerned that the slump had stricken the whole industry, rather than just Advanced Micro. The shares climbed 6 percent.

``People might now say maybe it's safe to put your feet in the water here,'' said Hans Mosesmann, an analyst at Raymond James & Associates Inc. He has a ``strong buy'' rating on Intel's stock, which he doesn't own. ``They have a super product lineup, and AMD is in a death spiral.''

Intel rose $1.28 to $22.19 in extended trading after closing at $20.91 on the Nasdaq Stock Market. The stock has lost 22 percent this year.

Second-quarter sales will be $9 billion to $9.6 billion, Intel said. Analysts surveyed by Bloomberg estimated sales of $9.25 billion.

`Solid' Market

``Our first-quarter results demonstrate a strengthening core business and a solid global market environment,'' Chief Executive Officer Paul Otellini said in the statement.

Analysts had predicted that Intel would report first-quarter net income of 25 cents a share on sales of $9.65 billion, according to the Bloomberg survey. The year-earlier results included a tax benefit of $300 million, or 5 cents a share.

Intel, whose results serve as a bellwether for computer demand, kicked off earnings season for U.S. technology companies. International Business Machines Corp., the world's biggest computer-services company, will report its first-quarter results tomorrow, followed by Advanced Micro on April 17.

Analysts surveyed by Bloomberg have cut their projections for first-quarter earnings at S&P 500 companies every week since Jan. 4. They now predict a 12.3 percent drop, compared with an estimate for an increase of 4.7 percent at the start of 2008.

Computer Demand

Analysts such as JPMorgan Chase & Co.'s Chris Danely were concerned that demand for PCs was falling and that chipmakers had produced too many chips. Danely lowered his estimates for Intel earnings this year to $1.36 a share on sales of $40.3 billion. He had predicted $1.44 a share on $40.7 billion in revenue.

Intel said last month that a glut of flash memory, which stores data in mobile devices such as Apple Inc.'s iPhone, was hurting first-quarter profit. The company entered the market for so-called Nand flash after forming a joint venture with Micron Technology Inc. in 2005.

``They entered the market at absolutely the wrong time,'' said Gus Richard, an analyst at Piper Jaffray & Co. He has a neutral rating on the stock, which he doesn't own. ``Their timing couldn't have been worse if they'd tried.''

On March 31, Intel and STMicroelectronics NV announced the completion of their joint venture Numonyx, a combination of their Nor flash memory businesses. Nor flash is used to store programs in mobile phones.

Intel forecast gross margin, the percentage of sales remaining after deducting cost of production, of about 56 percent in the second quarter, up from 53.8 percent last quarter. Gross margin is the only profit measure that Intel forecasts.

To contact the reporter on this story: Ian King in San Francisco at [email protected]

Last Updated: April 15, 2008 16:33 EDT