Intel Income Slips in Q2 Earnings

Intel isn’t out of the woods yet. The chip giant, which has been on a new
product
blitz that’s expected to continue through the
summer,
reported lower earnings for the second quarter today. During today’s
earnings call, CEO Paul Otellini acknowledged increased competition and
excess inventory for the decline.

Intel’s  earnings of 15 cents a share topped
forecasts by a penny, but sales fell 13 percent to $8 billion, more than the 10 percent
decline analysts expected. Intel said it expects third-quarter sales of
$8.3-$8.9 billion, below earlier estimates of $9.1 billion.

The competition, primarily from AMD,  will continue, though early reports indicate Intel’s latest server and forthcoming
desktop
chips are more competitive than they’ve been for over the past
year. Intel dominates on the mobile side and has another strong release
planned with its “Merom”
dual-core mobile chip later this year.

Otellini said the inventory issue (computer makers selling off an
overstock of systems based on older microprocessors) had been largely
resolved in line with earlier forecasts. The extra inventory led to lower
average selling prices in some areas, particularly consumer desktops based
on the older Pentium chips.

A price war between Intel and AMD is expected to heat up this summer.
Otellini acknowledged some of Intel’s prices would continue to decline. The
CEO said Intel’s new Core 2 Duo line (Conroe and Merom) enables it to reset
pricing into “Good, Better, Best” tiers.

“Core 2 Duo is the best microprocessor in the world and we’re going to
ramp up as soon as possible,” said Otellini. “Then we can lower Pentium to
system price points not previously seen.” He added that Celeron would
continue as the primary choice for cost-sensitive designs.

Both Otellini and chief financial officer Andy Bryant were bullish on
Intel’s prospects for the second half of the year. Bryant noted that Intel
is already bringing in revenue from the Conroe (desktop) and Tulsa
(quad-core server) processors, which have not been publicly released. Conroe,
Intel’s fastest desktop processor ever, is set for release on July 27, while
Tulsa will be released later in the next quarter, both ahead of earlier Intel forecasts.

Intel is finishing a company-wide review of operations, ordered by
Otellini in April, designed to wring a billion dollars in savings from
direct spending. Bryant indicated the company is on track to realize those
savings. One early result of the review was last week’s announcement that
about 1,000 managers worldwide would be laid
off.

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