By Scott Hillis
SAN FRANCISCO, July 19 (Reuters) - Intel Corp. (INTC,Trade) , the world's biggest chipmaker, posted a sharply lower second quarter profit on Wednesday and issued a disappointing sales forecast as it slashes prices to compete with Advanced Micro Devices Inc. (AMD,Trade).
The technology heavyweight said it expected sales for the third quarter to be between $8.3 billion and $8.9 billion, lower than Wall Street's average forecast of $9.03 billion, according to Reuters Estimates.
"The revenue number is definitely a worry," said Eric Ross, an analyst at ThinkEquity Partners. "I think they are going to do worse than this. There is a pricing dynamic in the industry. AMD and Intel are in a price war. Intel is probably going to underperform these numbers."
Intel shares fell one percent to $18.30 in extended trading on the Inet electronic brokerage. The stock has fallen about a third over the past year as Intel has struggled to stem AMD's market gains.
Net profit for the second quarter was $885 million, or 15 cents per share, down nearly 56 percent from a year earlier.
Excluding stock-based compensation, Intel earned $1.12 billion, or 19 cents per share, compared with $2.04 billion a year earlier. That was better than the $808 million, or 13 cents per share Wall Street had expected.
Revenue in the second quarter fell 13 percent from a year earlier to $8 billion, and was below the average forecast of $8.23 billion.
Inventories, a key concern of investors who have fretted over the impact of Intel's price cuts on profit margins, rose by about a fifth from the previous quarter to $4.3 billion.
Gross margin in the quarter was 52.1 percent, higher than Intel's earlier forecast of 49 percent but lower than the 55.1 percent in the previous quarter. For the third quarter, Intel said it expected that to be about 49 percent, "plus or minus a couple of points".
"Margins stayed up better in the second quarter, but now some of the price cuts will bleed into the third quarter. The margin recovery will probably be held off until Q4," said Cody Acree, an analyst with Stifel Nicolaus.
Intel's chief financial officer Andy Bryant said pricing would remain an issue throughout the year but that he expected Intel would regain some share from AMD.
"We continue to see a competitive price environment," Bryant told Reuters. "I believe we'll gain market segment share in the back-half of the year. It's a competitive environment, so it's not an instantaneous overnight switch."
Despite its recent woes, some analysts have said Intel may be poised for a comeback as it rolls out new chips that make it more competitive against AMD's offerings. It unveiled a new chip for server computers that run business networks last month, and is debuting a new desktop chip next week.
Intel is also looking for ways to shave $1 billion in costs. In April, Chief Executive Paul Otellini launched an extensive review of the company's operations, leading to speculation that Intel may eventually lay off thousands of workers and dump lackluster products.
The review, which ends later this month, has already led to the sale of the company's unprofitable communications chips business and the firing of 1,000 managers.
SAN FRANCISCO, July 19 (Reuters) - Intel Corp. (INTC,Trade) , the world's biggest chipmaker, posted a sharply lower second quarter profit on Wednesday and issued a disappointing sales forecast as it slashes prices to compete with Advanced Micro Devices Inc. (AMD,Trade).
The technology heavyweight said it expected sales for the third quarter to be between $8.3 billion and $8.9 billion, lower than Wall Street's average forecast of $9.03 billion, according to Reuters Estimates.
"The revenue number is definitely a worry," said Eric Ross, an analyst at ThinkEquity Partners. "I think they are going to do worse than this. There is a pricing dynamic in the industry. AMD and Intel are in a price war. Intel is probably going to underperform these numbers."
Intel shares fell one percent to $18.30 in extended trading on the Inet electronic brokerage. The stock has fallen about a third over the past year as Intel has struggled to stem AMD's market gains.
Net profit for the second quarter was $885 million, or 15 cents per share, down nearly 56 percent from a year earlier.
Excluding stock-based compensation, Intel earned $1.12 billion, or 19 cents per share, compared with $2.04 billion a year earlier. That was better than the $808 million, or 13 cents per share Wall Street had expected.
Revenue in the second quarter fell 13 percent from a year earlier to $8 billion, and was below the average forecast of $8.23 billion.
Inventories, a key concern of investors who have fretted over the impact of Intel's price cuts on profit margins, rose by about a fifth from the previous quarter to $4.3 billion.
Gross margin in the quarter was 52.1 percent, higher than Intel's earlier forecast of 49 percent but lower than the 55.1 percent in the previous quarter. For the third quarter, Intel said it expected that to be about 49 percent, "plus or minus a couple of points".
"Margins stayed up better in the second quarter, but now some of the price cuts will bleed into the third quarter. The margin recovery will probably be held off until Q4," said Cody Acree, an analyst with Stifel Nicolaus.
Intel's chief financial officer Andy Bryant said pricing would remain an issue throughout the year but that he expected Intel would regain some share from AMD.
"We continue to see a competitive price environment," Bryant told Reuters. "I believe we'll gain market segment share in the back-half of the year. It's a competitive environment, so it's not an instantaneous overnight switch."
Despite its recent woes, some analysts have said Intel may be poised for a comeback as it rolls out new chips that make it more competitive against AMD's offerings. It unveiled a new chip for server computers that run business networks last month, and is debuting a new desktop chip next week.
Intel is also looking for ways to shave $1 billion in costs. In April, Chief Executive Paul Otellini launched an extensive review of the company's operations, leading to speculation that Intel may eventually lay off thousands of workers and dump lackluster products.
The review, which ends later this month, has already led to the sale of the company's unprofitable communications chips business and the firing of 1,000 managers.