Desktop Weakness Dampens Intel's Fourth Quarter Results

The world's largest microprocessor maker, Intel on Tuesday reported fourth quarter revenue of $10.2 billion, an increase of 6 percent from the fourth quarter of 2004. Intel in December told analysts it expected to report sales of $10.4 billion to $10.6 billion for the quarter.

Intel posted net income of $2.45 billion, or 40 cents per share, an increase of 16 percent over 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/First Call.

Intel executives said the biggest hit was in desktop processors, where sales of systems and average selling prices were lower than expected.

Another problem was a continued shortage of chipsets. "We anticipated third party chipsets coming in faster than they actually did," said Intel CFO Andy Bryant. "The chipset imbalance got us hopefully for the last time."

Beginning in the third quarter 2005, Intel started speaking with analysts about chipset shortages. Intel President and CEO Paul Otellini told analysts that large OEMs had built up $100 million in inventory, primarily to ensure they had the right mix of motherboards, chipsets and processors to meet seasonal demands. Otellini said he expected that inventory to sell off by the end of the year.

However, Bryant said Tuesday that OEMs had built up another $250 million to $300 million in inventory, though he didn't see it as a long-term problem.

Intel, for the first time in a decade, brought on third-party chipset suppliers to build chipsets for some of its desktop motherboards in an effort to ease the tight supply. Bryant said he believes there are enough chipset available now but that it will take some time for the situation to return to normal.

Intel has been struggling to keep its sales of desktops consistent as AMD has been capturing more market share. In the third quarter, AMD said retailers excluding Dell sold more AMD-based systems than those with the traditional "Intel Inside." AMD's third quarter 2005 earnings increased by 73 percent. AMD is slated to report its earnings Wednesday.

Otellini said Intel's lower-power dual-core chips will help the company recapture share, particularly in the second quarter. "We will retake market share as dual-core ramps… across multiple segments," he said.

Otellini said that Intel's low-power Core Duo dual-core processors for notebooks are already showing up in low-profile systems, particularly for Intel's new entertainment PC platform called Viiv, rolled out at the Consumer Electronics Show earlier this month. He said the low-power desktop processors are slated to ship in the third quarter. On the server side, Intel's platform optimized for dual-core server CPUs will ship to OEMs this quarter with a lower-power refresh in the third quarter.

Bryant said Intel's Digital Enterprise Group, which includes its server processors and contributes one-third of Intel's revenue, was flat for the quarter and down from a year ago. Its mobile group, which contributes one-fourth of Intel's revenue, was up 3 percent for the quarter and 40 percent year over year.