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Intel maintains Q2 forecast

Reveals cost of treating stock options as an expense

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Intel is sticking by its earlier forecasts that its Q2 revenue will fall somewhere between $6.4 billion and $7 billion, according to the chip maker's latest Securities and Exchange Commission filing.

During Q1, Intel received revenues totalling $6.75 billion and posted a net income of $915 million. That figure would have come to $617 million, the company claimed, if it had been forced to treat employee stock options as a business expense - a reduction of $298 million.

That figure was calculated using the Black-Scholes formula, the most frequently used valuation method for converting stock options to expenses.

Shareholders are increasingly demanding such a conversion the better to receive more accurate and reliable financial statements in the light of the WorldCom (now MCI) and Enron scandals.

Ironically, the Black-Scholes formula is believed by some observers to offer misleading results, particularly for hi-tech companies with their rapidly rising and falling share prices. Change a few parameters - volatility and the option's average life-span - by small percentages, and employee stock option valuations - and thus the impact on the bottom line - can change by a very large margin.

Intel opposes expensing stock options, as do the boards of a number of other technology companies.

Shareholders like it because they believe it can prevent the excessive use of options in a company's compensation plans, the understatement of how much companies compensate their executives, and limit the use of strategies designed to promote short-term stock price rather than long-term corporate value.

Meanwhile, the market may be uncertain, but Intel's plan to spend $3.5-3.9 billion on chip production equipment during the quarter remains unchanged, the filing reveals. It also expects to take a hit of $80 million cover the amortisation of costs related to acquisitions. The cost for the full year will total $300 million. ®

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