Intel warns of further falling sales

Intel is girding for a third straight quarter of falling sales, highlighting the chipmaker's struggle to adapt in a world swiftly embracing mobile devices and leaving behind the personal-computer industry it dominates.

Sales in the current period may decline, Intel said, after reporting a 3 per cent drop last quarter. That followed a 5 per cent decline in the September quarter.

Intel, which employs more than 4,000 people in Ireland, plans to spend about $13 billion on new plants and equipment in 2013, more than analysts had projected, to help it cater to growing demand for handsets and tablets.

The effort won't quickly help the California-based company compensate for diminishing demand for PCs.

"They are definitely coming from behind and their market is moving away from them," said Patrick Wang, an analyst at Evercore Partners. "They are trying to breathe some life into the PC market."

Intel, whose microprocessors run more than 80 per cent of the world's PCs, is struggling as that market faces a second straight year of lower sales, according to analysts at JPMorgan Chase and Co. In mobile chips, Intel is playing catch-up to Qualcomm.

Intel yesterday reported sales of $13.5 billion last quarter, matching the average prediction of analysts, according to data compiled by Bloomberg. Net income fell to $2.47 billion, or 48 cents a share, compared 45 cents projected by analysts.

"I don't think things get better in PCs," said Cody Acree, an analyst at Williams Financial Group in Dallas. For growth in the PC market this year, "you're talking zero to how badly are you down."

Intel, which released the earnings report just before markets closed in New York, dropped as much as 5.8 per cent to $21.36 in extended trading. They had gained 2.6 per cent to $22.68 at the close. The stock dropped 15 per cent last year, compared with a 13 per cent gain in the Standard and Poor's 500 Information Technology Index.

Intel's sales this year - the last for chief executive Paul Otellini - will barely budge. First-quarter revenue will be $12.7 billion, plus or minus $500 million, the company said. That compares with an average analyst projection of $12.9 billion. Gross margin will be about 58 per cent. A year earlier, sales were $12.9 billion, while gross margin was 64 per cent.

For 2013, Intel said revenue will increase by a "low single-digit percentage". Analysts had predicted that sales would rise about 2 per cent to $54.4 billion this year.

Mr Otellini plans to retire in May, and the company is searching for his successor.

To help it meet demand for chips, Intel said it will spend $13 billion, plus or minus $500 million, on new equipment and new plants - also known as fabs - in 2013. That number, which compares with an average analyst estimate of $9.99 billion, raises questions about how the chipmaker will be able to fund such an expansion while maintaining dividend and share buybacks from the cash it generates, said Daniel Berenbaum, a New York-based analyst at MKM Partners.

"It's a gigantic number," he said. "It's not like their fabs are full now."

About $2 billion of the increase in spending this year will go to building a research facility for a forthcoming type of plant that processes 450-millimeter silicon wafers. When that goes into production, it will help increase the number of chips the company can get from each production run.

Under Mr Otellini, Intel has been able to compensate for part of the PC malaise by catering to buyers of servers, which outfit data centres. Revenue in Intel's data centre group rose 4 per cent to $2.8 billion in the recent period, compared with a 6 per cent decline in its main PC-chip business.

Intel expects demand from companies to drive a return to low-double-digit percentage growth for the data-centre business, chief financial officer Stacy Smith said.

Intel has "modest" expectations for growth in the PC industry, and is betting new chips going into tablets and slimline laptops it calls Ultrabooks will catch the attention of consumers. That will translate into reinvigorated demand in the second half of the year, Mr Smith said in an interview.

"We expect some unit growth in the back half of the year and into 2014," he said. "We're putting in the factory capacity to support that."

While Intel has won some orders from phone makers for its chips, that business won't "move the needle" for the whole company until next year, when its customers bring handsets featuring so-called long-term evolution high-speed data links to market, Mr Smith said.

PC shipments fell 4 per cent in 2012 and will slide a further 1.5 per cent this year, JPMorgan analysts estimate. Tablet unit sales, by contrast, rose 72 per cent last year and will surge 54 per cent this year, they project.

Fourth-quarter gross margin, the percentage of sales left after subtracting production costs, was 58 per cent, compared with an average analyst estimate of 57 per cent. A year earlier, gross margin was 65 per cent.

Intel's results kick off two weeks of earnings reports from the largest US technology companies. Because its chips power the majority of the world's PCs, investors watch Intel's earnings for a broad indication of demand for desktop, server and laptop computers.

The company's biggest customers are PC makers Hewlett- Packard and Dell, which together contribute more than 30 per cent of revenue, according to a Bloomberg supply-chain analysis.

Bloomberg