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Intel's earnings miss Wall Street forecasts

Intel Corp.’s profit leaped 51 percent as sales of microprocessors accelerated in the fourth quarter, but its shares plummeted on signs that the world’s largest semiconductor maker is feeling the pinch of an ailing U.S. economy.
/ Source: The Associated Press

Intel Corp.’s profit leaped 51 percent as sales of microprocessors accelerated in the fourth quarter, but its shares plummeted on signs that the world’s largest semiconductor maker is feeling the pinch of an ailing U.S. economy.

The Santa Clara-based company’s results, released after the market closed Tuesday, narrowly missed Wall Street’s profit and sales expectations.

The results jolted investors who thought the technology bellwether was shielded from the housing and lending morass that has crimped consumers’ discretionary spending, analysts said.

“The stock is reacting as hard as it is because the market was expecting Intel to be at the tail of the dog — not really seeing the weakness we’re seeing in retail yet,” said Doug Freedman, an analyst with American Technology Research. “But the numbers at the top line suggest they are absolutely seeing this weakness.”

Intel Chief Executive Paul Otellini dismissed concerns that the company was hurt by slowed spending in the U.S., noting that three-quarters of Intel’s business comes from outside the U.S. and the global PC industry appears healthy.

Otellini added, however, in a conference call with analysts that it would be “imprudent” not to be cautious about the economic pressures facing the U.S., a sentiment reflected in Intel’s latest financial guidance.

Intel shares plunged more than 14 percent, falling $3.24 to $19.45 in after-hours trading Tuesday after the results were released. During the regular session, they had lost 39 cents, or 1.7 percent, to close at $22.69.

Intel is the world’s No. 1 maker of the microprocessors that act as the brains of personal computers, and its results are closely monitored by investors as a valuable gauge of the health of technology spending and PC demand.

Jittery about the strength of the U.S. economy, investors flocked to technology stocks late last year as a safe haven when the mortgage and credit crisis worsened. But they have since retreated amid fears of a recession and its possible impact on tech companies.

Intel posted $2.3 billion, or 38 cents per share, in profit for the three months ended Dec. 29. That compares with net income of $1.5 billion, or 26 cents per share, during the same period a year ago.

Analysts polled by Thomson Financial were expecting profit of 40 cents per share.

Intel said it sold a record number of chips during the typically robust holiday quarter but their prices didn’t rise.

The company also struggled with higher-than-exected charges of $234 million resulting from the proposed spinoff of the division that makes NOR flash memory. NOR flash has been losing ground to NAND flash memory for use in portable electronic devices.

Intel said those charges — for expected losses — reduced profit by 2.5 cents per share.

Revenues also came in lower than expected.

Intel said it rang up $10.7 billion in sales during the latest quarter, a 10 percent improvement from $9.7 billion in the period a year earlier. But that was about $100 million short of what analysts expected.

Intel blamed the shortfall on lower prices for NAND memory chips, noting that sales of microprocessors were in line with the company’s expectations. Company executives said the PC business is healthy.

“The estimates may have gotten a little ahead of where we are, but I’m very pleased with the progress the company made over the course of the quarter,” Intel Chief Financial Officer Stacy Smith said in an interview. “We start 2008 exceptionally well positioned.”

Intel’s gross profit margin, a key figure scrutinized by analysts to gauge how well a company is managing its pricing and manufacturing costs, came in at 58.1 percent of revenues, an increase over the third quarter.

The increase was driven by higher sales and lower costs of producing chips.

Intel is ahead of its rival Advanced Micro Devices Inc. in transitioning to the latest generation of chip-manufacturing technology, a head-start that helped Intel drive down the cost of producing its chips while it simultaneously makes them more powerful.

For the full fiscal year, Intel reported net income of $6.98 billion, or $1.18 per share, up 38 percent from 2006. Annual revenue rose 8 percent to $38.33 billion.

In the first quarter, Intel expects revenue between $9.4 billion and $10 billion, which is within the lower end of the range of what analysts were expecting. Gross profit margin is expected to be 56 percent of revenues, plus or minus a couple percentage points.