Intel reported third-quarter earnings Tuesday that fell short of Wall Street expectations, although revenue held approximately steady from a year earlier at $6.5 billion.
Net income for the three months ended Sept. 28 came in at $768 million, up 17% from the third quarter last year, while earnings per share were $0.11, up 10%.
Financial analysts had been expecting a third-quarter profit of $0.13 per share, according to research company First Call/Thomson Financial.
The figures exclude acquisition-related costs that totaled approximately $108 million. Including those costs, net income for the quarter was $686 million, or $0.10 per share, Intel said. Revenue was $6.50 billion, down slightly from $6.55 billion in the third quarter last year.
Intel sold more microprocessors during the quarter than in the previous three months, but the average selling price of those processors was slightly lower. That’s because Intel gained share in the low-cost PC market, which shifted Intel’s “product mix” toward lower-priced chips, said Paul Otellini, Intel’s president and chief operating officer, in a conference call to discuss the results.
Revenue from its microprocessor group remained more or less flat compared to a year earlier, at $5.4 billion, the company said. Although it shipped more desktop chips during the quarter, volumes were down for both notebook and server processors, due to continued weak corporate spending and a sluggish back-to-school season, Otellini said.
Intel also saw growth in its wireless group, where revenue increased to $586 million, from $509 million a year earlier. Sales of flash memory chips increased, driven partly by the emergence of feature-rich phones that have color screens and built-in digital cameras, Otellini said.
However, the gains from its wireless group were offset by slow sales from its communications group, where slack demand from carriers and for network equipment reduced revenue to $482 million, from $580 million a year earlier, the company said.
Both the wireless and communications groups reported operating losses for the quarter; only the Intel Architecture Group, responsible primarily for Intel’s microprocessors, was profitable.
Intel is on track to release a 3-GHz Pentium 4 processor next month, which will bring its hyperthreading technology to desktop PCs. Hyperthreading allows specially tuned software programs to run as if a PC has two processors, which can boost performance by as much as 25%, according to Otellini.
Also by the end of the year, Intel will release its first server chip for multiprocessor systems based on its 0.13-micron manufacturing process. Code-named Gallatin, the chip will have a large on-die cache and run at a faster clock speed than its current chips for multiprocessor systems, Otellini said.
Intel continues to reduce its workforce, ending the quarter with about 82,000 employees worldwide, down about 1,500 from the end of the June quarter, officials said.
Its gross margin percentage came in at 49%, at the low end of its estimates, thanks largely to lower-than-expected savings from manufacturing, and higher-than-expected charges for excess capacity, Intel said.
While the industry is going through “one of its worst downturns ever,” Intel continues to innovate and introduced 18 new processors during the quarter, said Craig Barrett, Intel’s CEO, in a statement. Intel’s share of the microprocessor market — which for a time was under siege from rival Advanced Micro Devices — is at its highest level in four years, he added.
As it tries to keep costs down, Intel will continue to invest in technologies that are important to its core chip-making businesses and cut back on investments in other areas, Otellini said. In June the company shuttered its Web hosting business, and before that it cut back its consumer electronics products.
Intel expects fourth-quarter revenue to fall between $6.5 billion and $6.9 billion, the company said, although it noted that the uncertain economy makes predicting results particularly hard.
“We see the possibility of modest growth in the fourth quarter as the pace of economic recovery continues to define our outlook,” Andy Bryant, Intel’s chief financial and services officer, said during the call.
By geography, the Americas generated 32 percent of Intel’s revenue for the quarter, down from 37 percent a year ago, while Asia-Pacific — excluding Japan — increased its share to 38 percent, from 31 percent a year ago. Europe and Japan stayed fairly flat, accounting for 23 percent and 7 percent of Intel’s revenue, respectively, the company said.
“Latin America had a poor quarter as the currencies in Brazil and Argentina continue to be under pressure,” Otellini said.
Intel performed well in China, meanwhile, where revenue grew 39 percent year over year, Otellini said. Asia as a whole has become more important for Intel, he noted, as vendors outsource the manufacturing of products to that region, which in turn boosts local demand for Intel’s chips.
