Intel claims PC market has 'bottomed out'

From Times Online
April 15, 2009

Intel claims PC market has 'bottomed out'

Alexi Mostrous

Intel claimed today that the downturn in the personal computer sector had bottomed out, even as its shares slid nearly 6 per cent after economic uncertainty prevented it from offering financial forecasts for the rest of 2009.

The chip-making giant said that personal computer sales hit a trough in the first quarter but there was still too much market and economic turbulence to allow a precise projection for the second quarter.

However, Paul Otellini, president and chief executive of Intel, said: “We believe PC sales bottomed out during the first quarter and the industry is returning to normal seasonal patterns.” Stacy Smith, Intel's chief financial officer, added: “I believe the worst is now behind us.”

Intel reported a net profit in the three months ending March 28 of $647 million (£436 million) down 55 per cent from $1.44 billion, a year ago but above analysts' expectations.

Although earnings per share were more than three times the average Wall Street forecast, they were helped by a drastically lower effective tax rate of one per cent in the quarter, versus internal expectations of 27 per cent, analysts said.

Intel said its revenues in the first quarter of 2009 had slumped to $7.1 billion or 26 per cent lower than a year before, as chip demand hit a low point. Operating income was down 68 per cent at $670 million compared to the same period the year before.

Shares of the chip giant, a bellwether for the market and the global PC industry, fell during after-hours trading to $15.20 from a close of $16.01. Before yesterday, Intel stock had leapt 32 per cent from a 2009 low point of $12.01.

Gross margins at the company came to 45.6 per cent in the first quarter, compared to 53.1 per cent in the fourth quarter of 2008 but higher than analysts’ expectations.

“I would have liked to see higher gross margin guidance,” Edward Jones analyst Bill Kreher told Reuters. “The stock has had heck of a run in recent weeks, so it may be time for a breather here given that visibility does remain limited.”

Intel executives said that the timing of the eventual recovery was uncertain. “The company is currently planning for revenue [in Q2] approximately flat to the first quarter,” the company said.

Intel admitted that the “current uncertainty in global economic conditions makes it particularly difficult to predict product demand.”

In a statement, Intel also identified possible effects of the credit crisis on its business, including “insolvency of key suppliers resulting in product delays; inability of customers to obtain credit to finance purchases of our products, customer insolvencies; counterparty failures negatively impacting our treasury operations and increased expense or inability to obtain short term financing of Intel’s operations.”

Intel, which controls 80 per cent of the microprocessor market and is larger than rival Advanced Micro Devices, is a barometer of overall IT industry health.

The corporation had put out successive revenue warnings since late 2008 and cautioned it would be shutting or scaling down plants across Asia and the US and trimming jobs. On Tuesday, executives said the company had rid itself of 1,400 employees since the fourth quarter.

Speaking of the personal computer sector in general, Nathan Brookwood, a research fellow at Insight 64, said: “Things are no longer looking completely dark. There is light at the end of the tunnel. It would be even better if people were feeling good enough about it that they could put stakes in the ground ... (with) a revenue estimate.”

http://business.timesonline.co.uk/tol/business/industry_sectors/technology/article6096192.ece