Intel XScale biz to take $600m charge in Q4

But sales up overall, as expected

Intel narrowed it Q4 sales forecast yesterday, tightening the focus from its earlier prediction of $8.1-8.7 billion to $8.5-8.7 billion, as anticipated.

However, the company also said it would take a $600 million one-off charge during the period.

Revealed during Intel's mid-quarter update yesterday, the "goodwill impairment" charge relates to the chip giant's Wireless Communications and Computing Group (WCCG) - its business is not now expected to grow as much as previously thought, the company said.

WCCG is the organisation behind Intel's XScale family of PDA and smartphone-oriented processors. including next year's next-generation chip, 'Bulverde'. It also oversees Intel's Flash memory business and cellular baseband product line. It's one of the key components of the company's strategy to make wireless communications ubiquitous.

In a conference call, the company blamed the charge on slow mobile phone sales. "The wireless group is performing worst than we expected," said Intel CFO Andy Bryant. "There is no good will associated with Flash. Baseband is performing less than we expected."

The charge also relates to Intel's 1999 acquisition of mobile phone chipset maker DSP Communications. "The vast majority (of the charge) is DSPC," said Bryant. "We're at a point we need to write off DSPC."

Intel said the charge will knock six cents per share off its quarterly earnings, though it gave no other earnings guidance. Analyst Michael McConnell of Pacific Crest Securities, who correctly predicted the new, tighter quarterly sales forecast, said he expected earnings to come in at around 30 cents a share on sale of $8.6 billion. Presumably, we can now expect earnings of around 24 cents a share.

Q4's gross margin will be around 62 per cent, Intel said, up from its previous forecast of 60 per cent, but not beyond the margin of error it previously quoted.

The chip giant's R&D spending is expected to be $4.4 billion for the year, as compared to the previous expectation of $4.3 billion. Expenses will come to around $2.3 billion, at the high end of the previous expectation of $2.2-2.3 billion. ®