Shares plummeting after Intel warns of drop in profits

INTEL, the world's largest manufacturer of computer chips, yesterday issued a shock profits warning, predicting that its second quarter revenue could be up to 10 per cent below first quarter results.

A spokesman for the company's Irish operation, which, employs more than 3,000 people in Leixlip, Co Kildare, said it was "business as usual at the plant."

He said the company's major plans to extend its operations here were ahead of target.

The report sent Intel shares plummeting $20 to $143 in big volume when Wall Street opened. They then rallied slightly to close at $151 1/2, a loss of $12 3/8 on the day.

Intel blamed the expected fall in revenue to weaker than expected demand, especially in Europe.

The Irish operation is the sole manufacturer of Intel products, for Europe and is one of the multinational's four biggest plants.

The spokesman for Intel in Ireland said that traditionally second quarter results for European operations are weaker anyway. He said the multinational was still experiencing strong demand for its MMX technology and Pentium II processor products. However, demand was slower for the earlier Pentium products, he said.

"There has also been some problems getting enough product out to meet the demand for MMX and Pentium II," he said.

He said the company's building programme for another factory - called Fab 14 may be completed by summer 1998, ahead of target.

He said the company, which employs 3,500 people directly, is continuing to hire additional staff at a rate of 100 people per month. When completed, the Intel factories are projected to employ around 5,000 people.

The spokesman added that Intel had applied for planning permission earlier this week to extend the new 80,000 square metre factory by a further 18,000 square metres, if necessary. The project represents a $1.5 billion investment.

It will manufacture the next generation of computer chips which will be up to three times faster than the fastest currently available.

The Irish plants also make products for other Intel microprocessor products around the world. The spokesman said revenues were still growing, but not as rapidly as anticipated.

In its statement yesterday, Intel said it expects revenue for the second quarter to be down 5-10 per cent from its first quarter revue of $6.4 billion (£4.1 billion). Its gross margin is expected to fall slightly as well, from 64 per cent.

The company also said that expenses in the second quarter of 1997 will be 79 per cent higher than the $1.3 billion expenses in the first quarter.

The company also warned that several other factors could alter the next quarter's results.

Yesterday's statement came as Intel was besieged by lawsuits from computer firms Digital and Cyrix alleging copyright piracy.

Earlier this week Intel said it was countersuing against Digital, accusing it of violating its intellectual property rights by refusing to return confidential documents.

In March Intel lodged a complaint against Cyrix and another company, Advanced Micro Devices, alleging trademark infringement.