Stock tumbles after-hours as sales, inventory numbers from No. 1 chipmaker disappoint investors.
July 13, 2004: 5:02 PM EDT
By Paul R. La Monica, CNN/Money senior writer
NEW YORK (CNN/Money) - Intel Corp. Tuesday reported second-quarter profits nearly doubled but sales came in a bit lower than Wall Street forecasts, pushing the stock lower in after-hours trading.
The world's biggest manufacturer of chips used in personal computers and servers reported net income of $1.76 billion, or 27 cents a share, up from $896 million, or 14 cents a share, a year earlier. The consensus earnings estimate on Wall Street was 27 cents a share, according to First Call.
The Santa Clara, Calif.-based company also reported sales of $8.05 billion, up 18 percent from a year ago, but slightly lower than analysts' expectations of $8.1 billion.
Intel's gross margins, a closely watched measure of how profitable a company is after subtracting the cost of sales, also disappointed investors.
Gross margins came in at 59.4 percent, versus the guidance of 60 to 61 percent that Intel gave in June. The company cited slightly lower sales and last month's recall of some of its new Grantsdale chips for PCs.
Shares of Intel (INTC: Research, Estimates) fell about 5 percent in after-hours trading, following a slight dip in regular trading on Nasdaq.
The stock has fallen nearly 20 percent year to date due to concerns about rising inventories and fears that the semiconductor cycle may be close to peaking.
Intel's report will likely not put an end to the investor concerns about inventories, either.
Inventories at the end of the quarter were $3.2 billion, a 15 percent rise from the end of the first quarter. That's on top of an 11 percent increase in the first quarter. Wall Street is worried that Intel could be faced with an excess of chips if demand for PCs, servers and other tech hardware cools.
"It's all about the inventory. That's the biggest thing," said Kevin Rottinghaus, an analyst with FTN Midwest Research. "The company is going to have to work through some inventory this quarter."
Still, Intel did give positive sales guidance for the third quarter, which should silence critics somewhat. The company said third-quarter revenues should be between $8.6 billion and $9.2 billion.
The $8.9 billion midpoint of that range is ahead of Wall Street's $8.76 billion consensus estimate.
And if Intel hit that midpoint, it would represent a 13.7 percent increase from the third quarter of a year ago and nearly 11 percent sequential increase.
Intel has tended to report a sequential revenue increase of 6 to 9 percent in the third quarter, thanks to stronger sales of computers in the back-to-school shopping season.
But the increased sales guidance didn't appear to please Wall Street since the company also lowered its gross margin target for the year. Intel said that gross margins for 2004 would be about 60 percent, down from earlier predictions of 62 percent.
Erach Desai, an analyst with American Technology Research, said it looks like Intel is seeing improvement in sales of its flash memory chips, used mainly in cell phones, and that's boosting total revenue.
The problem is that flash memory chips are less profitable than Intel's core business of selling chips used in notebooks, desktops and servers.
Desai said the weakness in Intel's PC-focused business could be a sign of more price competition from rivals like Advanced Micro Devices, which reports earnings Wednesday. That's not going to please Wall Street.
"Intel will have better than usual seasonal demand but lower gross margins," Desai said. "That means a lower price product mix, which generally doesn't support a rising stock price."
Intel's results hit shares of other chip companies after hours as well as shares of semiconductor equipment companies that sell tools and gear to Intel. AMD (AMD: Research, Estimates) fell nearly 3 percent in post-market trading while chip equipment firms Applied Materials (AMAT: Research, Estimates) and Novellus Systems (NVLS: Research, Estimates) each dropped about 1.5 percent
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