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You are here: Home / Business Briefing / Intel Slashes Earnings Expectations
Intel Slashes Fourth-Quarter Earnings Expectations
Intel Slashes Fourth-Quarter Earnings Expectations
By Jennifer LeClaire / CRM Daily Like this on Facebook Tweet this Link thison Linkedin Link this on Google Plus
In what could be the first of some bad reports from technology giants, Intel on Wednesday announced preliminary fourth-quarter financial data. Revenue was about $8.2 billion, down 20 percent sequentially and 23 percent year over year. That's even lower than Intel predicted on Nov. 12.

Intel blamed weak demand and inventory reductions in the global PC supply chain. Intel's preliminary estimate of gross margin for the fourth quarter is at the bottom of the previous expectation of 55 percent, plus or minus a couple of points.

It could be that as Intel goes, so goes the PC market, according to Charles King, principal analyst at Pund-IT Research. King confirmed that Intel's announcement could be a sign of more bad news to come.

"It looks to me like the demand for its PC chip in particular has really fallen off the cliff, which is not really surprising," King said. "The market in general for PCs over the last quarter has looked grim leading up into the holiday season, and electronics retailers' revenue numbers were pretty awful as well."

A Charge for WiMAX

Intel is also cutting its losses on mobile broadband. As a result of the year-end market price of Clearwire stock, Intel will reduce the value of its investment, resulting in a noncash charge to fourth-quarter earnings of about $950 million.

Intel was one of a handful of companies that collectively invested $3.2 billion last year in the mobile broadband network. Google, Comcast, Time Warner Cable, and Bright House Networks were the others.

Intel now expects the net loss from equity investments, interest and other to be between $1.1 billion and $1.2 billion, up from an expectation of about $50 million.

"Intel has been touting the potential of WiMAX for years now. It looks like if the market for WiMAX ever takes off, it's going to be far in the future," King said. "When a company decides to take a bath for $950 million, it's usually a sign that significant mistakes were made."

Will Obama Save the Day?

Intel estimates it has spent about $2.6 billion on research and development, slightly lower than the $2.8 billion predicted. The company also pointed to $250 million in restructuring and asset-impairment charges.

"This is an economically systemic problem. As the world becomes ever more connected, a serious situation seldom stays in one place anymore," King said. "It would be impossible to expect the technology industry to survive and thrive when other industries are feeling so much pain."

That said, King pointed to a ray of hope. IBM CEO Sam Palmisano recently estimated the IT initiatives of President-Elect Barack Obama's administration to be worth about $30 billion in revenues for the IT industry. Depending on the size of the infrastructure build-out, he said, it could be good for IT and IT users over the long term.

Intel said it is continuing to review its fourth-quarter results and will provide additional information in its earnings announcement on Jan. 15.

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