Intel Sales Slowdown May Signal End of Growth Status (Update1)
By Ian King
July 15 (Bloomberg) -- Intel Corp.'s quarterly sales gain may slow to its lowest level in a year, signaling the world's largest chipmaker is losing its status as a growth company.
Intel probably will report sales increased 7 percent for the second quarter, according to a Bloomberg survey of 28 analysts, down from an average of 12 percent for the previous three quarters. Sales will rise an estimated 4 percent for the year, half the rate in 2007, the survey showed.
Prices for personal-computer processors, the source of most of Santa Clara, California-based Intel's sales, dropped 20 percent between 2004 and 2007, according to Mercury Research. That curbed sales growth, which had averaged about 25 percent a year from 1990 to 2000 as PCs became household items.
``Going back to double-digit growth is going to be difficult,'' said Tristan Gerra, an analyst at Robert W. Baird & Co. in Milwaukee. He has a neutral rating on the stock, which he doesn't own.
Chief Executive Officer Paul Otellini boosted profitability 38 percent last year after taking market share from Advanced Micro Devices Inc. and saving more than $1 billion in annual costs by cutting jobs and selling off businesses. The stock has fallen 23 percent this year as investors wait for him to reignite growth by breaking into new businesses.
The drop compares with a 16 percent decline by the 18-member Philadelphia Semiconductor Index and a 17 percent loss by the Dow Jones Industrial Average.
Intel fell 17 cents to close at $20.47 in New York trading yesterday. The stock fell 1.6 percent to the equivalent of $20.15 in German trading as of 11:37 a.m.
Analysts anticipate a profit of 26 cents a share on sales of $9.33 billion when Intel announces results after the market closes today, according to the Bloomberg survey.
Tom Beermann, an Intel spokesman, declined to comment.
Otellini, 57, said at the company's shareholder meeting in May that Intel is banking on advanced mobile phones, cheaper computers, industrial and automotive machinery, and home electronics to revive growth. Each will generate $10 billion a year for processor makers by 2011, he said.
Intel plans to create a new market for inexpensive PCs with a processor called Atom. In June, the chip began appearing in laptops that sell for as little as $250. Reaching lower-income buyers may be Otellini's best chance to fuel sales, said Bill Gorman, an analyst at PNC Institutional Investments in Pittsburgh.
``The PC market isn't stale yet,'' said Gorman, whose firm owns 10.9 million Intel shares, according to data compiled by Bloomberg. ``That market still has some legs to it, and they could maybe grow a little at the edges.''
Global PC shipments will rise 15 percent to 310 million units this year, according to research firm IDC. The Framingham, Massachusetts-based company expects percentage growth to remain above 10 percent until 2010.
Intel ended the first quarter with 78.5 percent of PC processor sales, according to Cave Creek, Arizona-based Mercury Research. AMD accounted for most of the rest of the market.
Increases in unit sales have been offset by a 6 percent annual decline in the average selling price of chips, Otellini told investors at a Sanford C. Bernstein conference in May, suggesting that Intel needs new markets to revive revenue.
Otellini is spending 20 percent of Intel's $6 billion research and development budget to move into new businesses. After this year's 4 percent increase, revenue will rise 7 percent in 2009 and 5 percent in 2010, according to analysts' estimates.
``They haven't made any material progress'' in boosting sales growth, said Gus Richard, a San Francisco-based analyst at Piper Jaffray Cos. who has a neutral rating on the stock.
Intel's attempt to challenge Texas Instruments Inc. and Qualcomm Inc. in telecommunications chips cost about $5 billion and ended in the sale of the unit for about a 10th of that amount in 2006.
A venture with Micron Technology Inc. in flash chips, which store data in portable devices, is entering full production just as the industry reels from a product glut. Boise, Idaho-based Micron reported a wider quarterly loss last month and said prices of so-called Nand flash memory, used inside music players and cameras, have dropped 20 percent.
``They've been in telecom, and that didn't work,'' Gorman said. ``Now they're in Nand flash, and that isn't working.''
Intel isn't interested in becoming a mature company that only attracts investors with dividends and stock buybacks, Otellini said at the Bernstein conference. He said he spends less than an hour a year wondering if he should reduce spending aimed at spurring sales.
``Our focus is on growth,'' he said.
The Atom chip may be the breakthrough the company needs to cultivate a new market, said Highmark Capital Management Chief Investment Officer David Goerz, who manages $22 billion, including Intel shares. The product lets the company tap booming sales of inexpensive portable devices overseas, he said.
``Intel's been a one-trick pony for a long time and now I see them with an opportunity to be a two-trick pony,'' said Goerz, who is based in San Francisco. ``They are one of the best positioned technology companies to profit from global growth.''
To contact the reporter on this story: Ian King in San Francisco at email@example.com
Last Updated: July 15, 2008 05:58 EDT