December 8, 2005 1:59 PM PST

Intel narrows its forecast

Intel on Thursday slightly narrowed its outlook for fourth-quarter sales, a sign that seems to be making some investors queasy.

The Santa Clara, Calif.-based chip giant said it now expects fourth-quarter revenue to be between $10.4 billion and $10.6 billion. In October, Intel had forecast revenue for the period to be between $10.2 billion and $10.8 billion.

The midpoint between both sets of figures, however, is $10.5 billion. Wall Street analysts generally adopt the midpoint, with small adjustments, as their own revenue expectation.

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Before the announcement, some, such as Merrill Lynch's Joe Osha, anticipated that Intel would narrow its guidance in a way that would raise the midpoint.

The company's stock, which closed at $26.15, dropped to around $25 in after-hours trading Thursday.

Intel CFO Andy Bryant said that revenue would climb approximately 4 percent to 6 percent from the third quarter, which is toward the lower end of the range for the fourth-quarter lift. Part of the reason is that excess inventory of some parts existed in the market, slightly depressing sales. Additionally, Intel faced a chipset shortage. Since processors won't work without chipsets, the shortage crimpled overall sales.

Still, Bryant said that the market remains strong. For 2005, Intel will report around $39 billion in revenue and $8 billion in net income. Gross margin, the amount of money left over after expenses, will come to around 60 percent for the year, two points higher than last year. For the quarter, "gross margin percentage will likely be above 63 percent," he said.

After limping through product delays and cancellations in 2004, Intel has enjoyed a somewhat smoother 2005. The company beat financial expectations in the first quarter and raised its own revenue forecast in the second quarter. In the third quarter, the company's revenue grew to $9.96 billion, though earnings came in at $2 billion, slightly lower than expected.

One of the primary drivers has been sales of notebook chips. PC sales have also been quite strong--U.S. retailers sold more notebooks and PCs during Thanksgiving week than anticipated.

Chip sales to emerging markets are also boosting sales, Bryant said.

Nonetheless, the company has faced increasing competitive pressure from Advanced Micro Devices. In the second quarter, AMD accounted for more than 10 percent of the market for server chips based on the popular x86 architecture. That marked the first time that AMD cracked into double digits in that market. Overall, the smaller rival has gained a few points of market share in the past two years.

AMD also began to increase production of Turion, a chip that competes against Intel's notebook chips.

 

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