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Intel warns against undue optimism
No recovery on the cards yet?

By Reuters

Published: Tuesday 26 August 2003

Chip giant Intel has cautioned that its third quarter sales rebound that has excited investors might be temporary and is not a sure sign that the sector has emerged from its three-year slump.

Intel chief executive Craig Barrett told Reuters in an interview: "We don't know how much of this Q3 is a kickback of a Sars-related spending that didn't happen in Q2."

Asia Pacific accounted for two-fifths of Intel's $6.8bn revenue in the April-June quarter.

"We are seeing a stronger-than-anticipated third quarter," Barrett said.

"The question whether the fourth quarter will continue off of that, based on what we said for the third quarter, we don't know yet," said Barrett, who was on Malaysia's northern Penang island to launch a new $40m design centre for Intel's local plant.

He did expect a rise in fourth quarter PC sales due to seasonal demand, he said, but was unsure whether the traditional year-end boom would be sharper this year than in 2002.

Industry outlooks and earnings guidance from Intel, whose processors are found inside 80 per cent of personal computers worldwide, are closely watched by a semiconductor market with an estimated $150bn in annual sales.

The giant surprised investors on Friday when it raised revenue and profit margin forecasts, but declined to call a definitive recovery for the still struggling industry.

Despite the contradictory stance and analysts' cool response to its optimistic forecasts, Intel shares shot to a 14-month high on Friday and lifted other technology stocks. But it lost 0.55 per cent on Monday versus a 0.06 drop in the Nasdaq Composite Index.

Intel expects revenue in the July-September period to rise to between $7.3bn and $7.8bn, up 11 per cent from the second quarter. Only last month it had forecast sales of $6.9bn to $7.5bn.

Barrett also said Intel was unworried by a new line of super powerful microchips due to be released by nearest rival Advanced Micro Devices, and did not plan to offer desktop equivalents to protect its market share.

There has been speculation the new AMD chips, the Opteron and Athlon 64, could pose the biggest-ever threat to Intel's popular Itanium and Pentium chips.

There were still no applications software for the Athlon 64, and an operating system promised by Microsoft would not come to market until next year, he said.

"We have no plans at this stage for a 64-bit address extension like the AMD device for the desktop," said Barrett.

"AMD has embarked on a late-year company strategy. That's fine but I wouldn't trade places with them."

AMD's server-centric Opteron processors will be used to build the fastest supercomputer in China. The Athlon 64, which is designed for desktops, can run more complex business applications and accommodate more memory than current standard 32-bit chips.

Barrett said Intel looked on track to meet its profit margin forecast of 56 per cent for this year, boosted by demand for its chips in all markets, particularly Asia.

The company would continue to pump money into five key Asian countries - China, India, Russia, Malaysia and Philippines - to tap the region's high growth prospects, he said.

North American and European firms were still not spending on IT infrastructure, but consumer markets there were OK, he said.