Intel Flashes a Warning

UPDATE: The No. 1 chipmaker says its first quarter will stay within analyst's estimates, fueling reports that the semiconductor sector is growing but shaky.

As a true indication of the health of the semiconductor industry, Intel Thursday said it will meet its earnings expectations when it files a quarterly financial statement next month. The company's first quarter ends March 29.

The Santa Clara, Calif.-based chip making giant said it expects revenue to be between $6.6 billion and $6.8 billion, as compared to a previously reported range of $6.5 billion to $7 billion. That is a little shy of what analysts were hoping for. The expectation was for Intel to leave the upper figure of its revenue range in place while lifting the low end. Analysts polled by Thomson First Call had predicted earnings of 12 cents a share on revenue of $6.75 billion, on average.

Intel said its Architecture business is trending slightly above expectations and continues to follow seasonal patterns. However its communications business is trending below expectations due to lower than anticipated flash memory sales. Intel said it has a glut of flash inventory reserves as a result of sluggish holiday sales. The company expects the gross margin percentage to be slightly below the midpoint of the range of 50 percent.

"It feels like there is a share loss but you don't see the real data until the end of the quarter. But my instinct is yes that there was share loss in the flash business," Intel CFO Andy Bryant said during the conference call. "Other than the flash revenue shortfall we could have said that everything is on track with no changes."

Analysts traditionally point to Intel's mid-quarter statements as a bellwether for the rest of the industry considering the company's dominance in the chipmaking sector.

While the softer than expected numbers are unsettling, many industry groups are unfazed.

New numbers issued Monday by Semiconductor Industry Association (SIA), global semiconductor sales totaled $12.2 billion in January 2003. That number represents a 2.4 percent decrease from the $12.5 billion in revenue reported in December 2002 but a 22 percent increase from the $10.0 billion total recorded in January 2002.

Despite the dip between December and January, San Jose, Calif.-based SAI says it still stands by its prediction of growth of about 21 percent to $169 billion in 2003, 22 percent to $206 billion in 2004, and then remain flat at $206 billion in 2005.

"We continue to forecast double digit revenue growth for 2003 and broad-based strength in our industry, driven by a recovery in information technology spending, a fast-paced global wireless market, and the emergence of new growth sectors, including Wi-Fi and broadband networks using advanced semiconductor technologies," said SIA president George Scalise.

What Intel says in the second half of the year will also be important, since there's a widespread belief that there will be a second half pickup just based on corporate replacements.

In anticipation of the mid-quarter report, Intel's stock was down 26 cents, or 1.5 percent, at $16.72 and was the third-most-active issue in morning Nasdaq trading.

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