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The BBC's Stephen Evans, in New York
"Intel is one of the pillars of the computer revolution"
 real 56k

Wednesday, 18 July, 2001, 06:54 GMT 07:54 UK
Intel profits slump 76%
Pentium 4 processor marketing image
The Pentium 4 processor: "critical" to Intel's future
The world's largest chipmaker, Intel, has pledged to shake up its sales operations after reporting profits down by three-quarters.

The firm has announced an aggressive push of its Pentium 4 chips and a "very single-minded drive" to phase out old-generation products, in an effort to revive underlying profits which fell to $854m in the three months to 30 June.

The figure, equivalent to 12 cents a share, was higher than the 10 cents a share forecast made by Wall Street analysts.

But it compared with a figure of 50 cents a share reported in the April-June quarter last year.

Concern over forecasts

The apparent inability of Intel to predict future earnings accurately also unnerved analysts

A range of $6.2-6.8bn for sales in the current quarter was "very wide", said Justin McNichols, portfolio manager with Osborne Capital Management.

"What the [markets] were hoping for was some kind of flat guidance," he added.

Intel shares, which had risen on Tuesday, fell $0.45 to $29.45 in after-hours trading.

The breadth of the forecast also depressed shares in Tokyo, where the benchmark Nikkei index closed 1.95% down at 11,892.58 points.

"Given such poor visibility, people cannot be optimistic about investing in tech issues," said Hidenori Kawasaki, general manager at Kokusai.

'Critical' chip

Intel's decision to push Pentium 4 sales comes as growing competition from Advanced Micro Devices (AMD) has added to problems of slack demand for chips, amid the slowdown in economic growth worldwide.

AMD microprocessors have received critical acclaim in recent months, topping the performance of comparable Intel chips in some tests.

"Intel has a fairly significant problem - the Pentium 4 is critical because it starts to open up a gap [with] competitors," said Steve Kleynhans, vice president and analyst at Meta Group.

"AMD has obviously... surpassed the Pentium 3. Pentium 4 is tanking badly in the market and [Intel will] do everything to ensure that Pentium 4 becomes the mainstream chip."

Ashok Kumar, an analyst at US Bancorp Piper Jaffray, said: "Intel are trying to drive a stake through AMD's heart."

Differing demand

However, Intel reported a resilient market overall for chips used in making PCs, with the volumes of chip sales rising 6%, albeit at lower prices.

"This gives us confidence that the stronger seasonal second half that we typically experience will happen," Intel's chief financial officer Andy Bryant said.

But demand for chips used in telephones and digital cameras was weak, reflecting the experience of UK's telecoms equipment maker Marconi, which has noted a "very, very significant" slowdown in Europe, and indeed AMD itself.

AMD said last week it had been hit hard by a slump in sales of the chips, and warned it may fall into the red.

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