Year-End Inventory Impacts Intel

A buildup of desktop inventory haunted Intel again in the fourth quarter, a problem that exasperated sluggish sales in that segment.

Revenue for the fourth quarter rose 6 percent to $10.2 billion. But that was below Intel’s own revised estimates of $10.4 billion to $10.6 billion.

Intel posted net income of $2.45 billion, or 40 cents per share, an increase of 16 percent over a profit of $2.12 billion, or 33 cents per share, in the same quarter last year. Analysts expected earnings of 43 cents per share, according to Thomson Financial/First Call.

Intel executives blamed an unusually slow December, particularly in desktop processors, where sales and average selling prices slipped. Intel CFO Andy Bryant also cited a persistent shortage of chipsets for desktops and said multinational OEMs had built up $250 million to $300 million in inventory.

But big manufacturers weren’t the only ones stockpiling motherboards. Syracuse, N.Y.-based system builder Seneca Data bought six months’ worth of motherboards to ensure it could provide customers with the products they want, said Doug Phillips, Seneca’s senior director of emerging technologies.

Providing a stable platform is particularly important for VARs and system builders that serve corporate and vertical markets. Contracts often hinge on these solution providers being able to provide a specific configuration.

Although Santa Clara, Calif.-based Intel worked with third-party chip suppliers to manufacture chipsets that were in short supply, many system builders want Intel parts because of the support and warranty that accompany them. “We made a choice to center everything around Intel—their name, support and everything they stand for—and then they say we can’t sell you boards anymore,” Phillips said.

Intel’s pain appeared to be Advanced Micro Devices’ gain. Intel’s smaller rival turned in a strong fourth quarter, buoyed by robust server and mobile sales. Hector Ruiz, chairman, CEO and president of AMD, Sunnyvale, Calif., also noted that relative desktop strength was a surprise.

AMD’s fourth-quarter sales were $1.84 billion, up 45 percent; net income was $96 million, compared with a loss for the year-earlier period.

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