Top local employer sees weaker outlook - East Valley Tribune: Business

Top local employer sees weaker outlook

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Posted: Wednesday, January 7, 2009 10:57 am | Updated: 1:22 am, Sat Oct 8, 2011.

Even after sharply reducing its outlook for the fourth quarter, Intel Corp. said Wednesday that it would miss its revenue projection by about $500 million, a sign that personal computer makers and other buyers of its semiconductor products are being more tightfisted than it seemed only two months ago.

Intel shares fell nearly 5 percent following the announcement.

Santa Clara, Calif.-based Intel, the world’s largest chip maker, now says revenue is expected to be $8.2 billion for the last three months of 2008, a 23 percent decline from the same year-ago period. Analysts surveyed by Thomson Reuters were expecting $8.7 billion, which was at the low end of the range Intel provided in November of $8.7 billion to $9.3 billion.

Intel, which is the largest private-sector employer in the East Valley with about 10,000 employees at two major sites in Chandler, also expects its profits to be hit when it announces its official fourth quarter results on Jan. 15. The company expects its gross profit margin to be at the bottom of its previous guidance, which was for 53 to 57 percent of revenue.

Gross profit is the amount of money a company earns after manufacturing costs are stripped out. It’s a valuable gauge of how well companies are controlling their costs, and is particularly useful in looking at chip makers since their manufacturing expenses can be quite large.

The fact that Intel has had to revise its fourth-quarter guidance twice indicates how deeply the economic meltdown has damaged the semiconductor industry. It also reveals how hard it is for even conservative companies — Intel formally stopped doing mid-quarter updates in 2006 — to figure out how badly they’re being hurt.

Intel blamed the latest revision on weaker-than-expected demand, as PC makers are trying to save money by using up their existing inventories of chips instead of buying lots of new ones. That is a trend that has slammed chip makers since the downturn intensified in September but now appears to be worsening.

Despite the technology slump, Intel spokeswoman Dawn Jones said the company has not taken any unusual steps to cut production or jobs at its Chandler operations - a least not yet.

“We have said that we would always work to be more efficient,” she said.

Intel’s primary competitor in the market for microprocessors, which are the brains of personal computers, has also slashed its forecasts. Sunnyvale, Calif.-based Advanced Micro Devices Inc. warned last month that its fourth-quarter sales would drop 25 percent from the previous quarter. That implies a drop of 33 percent from the previous year.

Intel also needs to absorb a charge for the deterioration of the value of its investment in Clearwire Corp., an Internet provider specializing in a new type of wireless broadband technology called WiMax. Intel, which invested $600 million in Clearwire in 2006, plans to take a $950 million non-cash charge in the fourth quarter because of Clearwire’s falling market value. Clearwire’s stock price has fallen from around $12.50 in October to around $5 today, leaving it with a market capitalization of $833 million.

Time Warner Inc., another Clearwire investor, said Wednesday it would take a similar charge, for approximately $350 million.

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