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Intel fingers slow PC sales for rough Q1

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Intel, as expected, blamed a weak PC market for a poor set of first quarter results. Although, such an excuse remains tough to stomach given rival AMD's smashing quarter last week.

Intel's first quarter revenue slipped 5 per cent year-over-year to $8.9bn. That drop, however, was actually a bright spot during the difficult period.

Intel's profit of $1.3bn, for example, marked a 38 per cent slide from last year's first quarter. In addition, its earning per share figure of 23 cents was a 34 per cent reduction year-over-year. In total, Intel posted its worst quarter since the dot-com bust era.

"We believe PC growth rates have moderated over the course of the past few quarters, leading to slower chip-level inventory reductions at our customers and affecting our revenue in the first half of the year," said Intel President and CEO Paul Otellini.

Wall Street doesn't appear to be buying Otellini's take on the status of Intel's business. A Merrill Lynch analyst earlier this month urged Intel to consider whether or not Otellini is really the right man to revive the firm, which has fallen behind AMD on desktop and server processor performance.

AMD last week reported an increase in notebook, desktop and server processor sales, while posting a more than 70 per cent rise in overall revenue. Like Intel, AMD did point to the PC processor market as its slowest segment.

During a conference call with analysts, Intel executives admitted that AMD gained more market share than they had expected during the second half of 2005. They, however, denied that AMD had the same impact during the first quarter.

"The first quarter was a noticeable change from what we saw in the back half of '05," said Intel CFO Andy Bryant.

The lackluster PC market has forced Intel to "adapt to lower expectations" by cutting costs and initiating a hiring freeze.

In addition, Otellini vowed to examine ways to "significantly increase" the company's efficiency in 2007.

Turning back to the first quarter, Intel said, "First-quarter gross margin was 55.1 percent, versus a January expectation of 59 percent, plus or minus a couple of points. Gross margin was impacted by lower microprocessor revenue and higher inventory write-downs."

Overall, Intel's processor, chipset, motherboard and flash memory sales declined during the quarter. Sales were down in all regions except Japan.

Intel expects second quarter revenue to come in between $8.0bn and $8.6bn, which would be below typical patterns.

"The company believes PC growth rates have moderated in recent quarters, resulting in above-normal customer inventory levels that are limiting demand in the short term," Intel said.

Intel has put itself in a difficult position by pre-announcing new desktop and server chips that will arrive in the second half of this year. The new products will be built around a much-improved architecture. Customers appear to be waiting for this upcoming product and defecting to AMD at the same time. ®

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