• United States

Intel narrows Q4 outlook, plans $600 million charge

Dec 05, 20033 mins
Financial Services IndustryWi-Fi

Intel Thursday narrowed its previous guidance for fourth-quarter revenue on the strength of its microprocessor business, but will take a $600 million charge in the quarter to account for reduced long-term growth prospects in its XScale processor business.

Fourth-quarter revenue is now expected to fall between $8.5 billion and $8.7 billion, the Santa Clara company said in a release. During its third-quarter earnings conference call, the company forecast fourth-quarter revenue would fall between $8.1 billion and $8.7 billion.

Intel credited “solid seasonal growth” in its Intel Architecture business, which develops and markets its Pentium 4, Pentium M, and Xeon processors, as a reason behind the company’s move to the high end of its previous range.

But the long-term growth prospects of the Wireless Communications and Computing Group (WCCG) business are not as high as Intel had once thought, the company said. Therefore, it will record a $600 million charge related to an impairment in goodwill.

The WCCG business consists of Intel’s XScale processors for personal digital assistants and cell phones, its PXA800F chip for data-enabled cell phones, and its flash memory business.

Each year in the fourth quarter, Intel examines its business units and determines whether the current value of those units is in line with the value they carry on the company’s balance sheet, said Andy Bryant, Intel’s chief financial officer, in a conference call following the press release. The impairment charge relates primarily to an acquisition Intel made in 1999, Bryant said.

Intel purchased DSP Communications for about $1.6 billion in cash in October 1999 for the company’s digital cellular processor technology. The assets acquired in that transaction have since declined in value, requiring the company to write down the goodwill value of those assets, Bryant said.

Goodwill measures intangible assets, such as a brand name, that don’t have a specific cash value but that increase the earning power of a business.

Some of the products that were developed with technology and engineering talent from that acquisition include the PXA800F, also known by its code name Manitoba, Bryant said.

The PXA800F includes a processor, flash memory, and a digital signal processor on a single chip. It was Intel’s first chip designed as a single package for next-generation cell phones, but sales of those cell phones have not grown as strongly as Intel thought they would heading into 2003, Bryant said. This led to lower-than-expected sales of the PXA800F chip and hurt the profitability of the division, Bryant said.

Bryant declined to answer a question from a financial analyst about possible management changes at WCCG as a result of the impairment charge.

“This is unfolding as an unusual quarter,” Bryant said. His enthusiasm for the projected fourth-quarter revenue from the Intel Architecture business was tempered by the need for the impairment charge, he said.

Research and development expenses will come in a little higher than expected for 2003. At $4.4 billion they will be up from previous expectations of $4.3 billion, Bryant said.