Transcripts

Intel Issues An Earnings Warning

PAUL KANGAS: A big surprise today from one of the biggest technology bellwethers. Intel warned that its first quarter revenue would fall short of its earlier estimates. While the news initially sent Intel shares tumbling 3 percent, they ended down only modestly, but do remain near a 52- week low. Suzanne Pratt tells us why Intel is having difficulty booting up its sales.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: It isn`t easy being Intel. After all, sales of personal computers are slipping. On top of that, smaller rivals like Advanced Micro Devices have been offering stiff competition. As a result, Intel slashed its first quarter revenue forecast today by half a billion dollars. In the current quarter, Intel now expects revenue of $8.7 billion to $9.1 billion, well below its prior forecast. Intel, in part, attributed the revenue miss to a slight market share loss. While management did not define slight, analysts say a tiny loss for Intel is a big win for AMD.

RICHARD WHITTINGTON, SEMICONDUCTOR ANALYST, CARIS & CO.: I think AMD is spot on. The reason that Intel had a tough fourth quarter last year and is having an even more difficult than expected first quarter.

PRATT: AMD still runs a distant second to Intel in chip sales, but experts say many AMD products are simply better. Intel has had no choice but to slice chip prices by as much as 50 percent and today it said it expects gross profit margins to be squeezed by that lower revenue. Nevertheless, many analysts believe Intel`s troubles are company specific at least for now, although some are worried about the future.

APJIT WALIA, SEMICONDUCTOR ANALYST, RBC CAPITAL MARKETS: Usually if you look the last 30 years, Intel is a leader in the semi space, which actually leads technology. So when Intel sees something, whether its strength or weakness, it means something for the sector.

PRATT: Most analysts predict Intel will ultimately be able to fix its problems. Exactly how long that will take is a matter of debate. And even though Intel is expected to remain profitable in the current quarter, analysts are mixed on the stock, which has remained in a trading range this past year. Caris and Company`s Whittington says the shares are moderately overvalued.

WHITTINGTON: If one had an overweight position, you`d definitely want to scale it back to no more than market weight. And frankly I think investors are going to look at other names in the semiconductor and technology area for earnings growth over the next couple of quarters, next couple of years.

PRATT: For decades, Intel has been a powerhouse in the chip sector. But experts say, in the tech world, once a company loses market dominance, it can be hard to get it back. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.