Intel Suffers First Quarterly Loss In 22 Years

Intel posted its first quarterly loss in more than two decades Tuesday despite beating analysts' expectations for its second quarter, due largely to the record $1.45 billion antitrust fine levied against the world's biggest chip maker by the European Union in May, the company said in a conference call with investors.

Intel, Santa Clara, Calif., reported a loss of $398 million for the quarter, the first such period in the red for the microprocessor giant in 22 years. The company had profits of $1.6 billion in the second quarter of 2008. Revenue fell to $8 billion from $9.5 billion in the year-ago quarter, a 16 percent decline that indicates that recessionary difficulties for the high-tech industry are far from over.

Still, Intel's second-quarter sales mark a fairly hefty improvement over the 26 percent year-over-year revenue decline the company reported for its first fiscal quarter of 2009. And while Intel just missed its own low-end projection of $8.1 billion in sales for the current period, the company handily beat the consensus forecast by Wall Street of about $7.5 billion. Gross margins of 53 percent for the second quarter were also above expectations.

Intel CEO Paul Otellini spoke at length during Tuesday's earnings call with investors about a deep reduction of Intel's inventory levels -- totaling $900 million -- for the first half of the year, saying that signs now point to the replenishing of that inventory throughout the company's distribution channel and OEM supply chain. But he refrained from the sort of macroeconomic commentary that highlighted his remarks in during Intel's first-quarter conference call, when Otellini said that "the worst is behind us" and that PC sales had "bottomed out" during the brutal fourth quarter of 2008 and first quarter of this year.

Still, Intel's better-than-expected second-quarter numbers may be the best vindication for Otellini. Absent the EU charges, Intel earned an even $1 billion for the quarter. That's still down 38 percent from the $1.6 billion in profits Intel made in the second quarter of 2008 -- but starting with the devastating close to last year, Intel has now reduced its year-over-year profit declines from 90 percent in the fourth quarter to 55 percent in the first to the just-concluded period's 38 percent drop.

Perhaps not the most dramatic of "green shoots," but Intel also reported strong early sales of its new Nehalem-class server and workstation processors, as well as 65 percent sequential growth in sales of its ultralow-voltage Atom processors for netbooks, nettops, mobile Internet devices and embedded systems. Regionally, Otellini said the Chinese and U.S. markets were "strong" for Intel in the second quarter, while Europe "lagged behind."

Otellini also intimated that consumer demand for the combination of new Intel client products and Microsoft's upcoming Windows 7 operating system could prove healthy this year, but warned that "we're not out there thinking that there's going to be a recovery to the prior level."

As for demand for Intel products in the enterprise space, he said that while many businesses are due for a refresh of their computer systems, "we're not expecting that to happen in a large way in 2009."

Intel is forecasting revenue of $8.5 billion for its third quarter, historically stronger for the company than the second quarter thanks to back-to-school buying, but hedged that projection with the possibility of a $500 million swing in either direction of the target figure.

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