Intel Misses Guidance, Raises 2006 Capex

MANHASSET, N.Y. — Intel Corp. posted net earnings of $2.5 billion, or 40 cents per share on sales of $10.2 billion in the fourth quarter, with revenue falling below the company’s updated guidance for revenue of $10.4 billion to $10.6 billion.

In December, Intel (Santa Clara, Calif.) narrowed its fourth-quarter guidance from the original range of $10.2 billion to $10.8 billion. The move raised the ire of analysts, who expected Intel to perform better.

In total, Intel’s fourth-quarter sales were up 2 percent sequentially and up 6 percent from a year ago. Profits were up 23 percent sequentially and 16 percent from a year ago.

Intel attributed the lower revenue to lower-than-expected shipments and falling average selling prices for processors sold to the desktop PC market. During a conference call with analysts, Intel CEO Paul Otellini added that an inventory build up, along with continuing chip set shortages, contributing to the less-than-stellar results.

A telltale sign of Intel’s fourth-quarter woes were gross margins, which at 61.8 percent fell below the company’s mid-quarter guidance of 63 percent. Intel cited a product mix shift to non-microprocessor products as the reason.In recent months, Intel has been facing heightened competition from AMD Inc., with its chief rival edging the company in desktop processors for the retail market.

Surprisingly, Europe was the biggest market for Intel, followed by Japan, Asia-Pacific and then the Americas. The Americas market was in negative growth territory for the quarter.

Intel’s digital enterprise group had flat sales, but operating profits were up for the desktop processor unit. The mobility unit continued to shine, as sales and operating profit were up. Its flash-memory unit narrowed its losses to $12 million in the quarter as sales improved.

For 2005, Intel earned $8.7 billion, or $1.40 per share, on sales of $38.8 billion. Earnings rose 19 percent and sales climbed 13.5 percent from 2004, when Intel earned $7.5 billion, or $1.16 per share on sales of $34.2 billion.

Intel, which is ramping up its 65-nm process technology, said it planned to invest $6.9 billion in capital expenditures in 2006. That's up 19 percent from $5.8 billion in 2005, according to Intel chief financial officer Andy Bryant, during the conference call.But other aspects of Intel's 2006 forecast were troubling. The company projects sales to rise by only 6 to 9 percent over 2005, and expects gross margins of 57 percent.

For the first quarter, Intel forecast revenue of $9.1 billion to $9.7 billion, sequentially lower, with gross margins of 59 percent.

Bryant said lingering inventories at OEM customers would reduce first-quarter revenue. Otellini added the company would no longer issue mid-term forecasts.

On the technology front, Otellini said Intel would continue to ramp up its dual-core processor lineup, and launch a new architecture for mobile products during the second half of 2006.