Intel’s earnings up 19% despite chip price war
Intel Corp. is getting the best of the chip industry’s pricing war.
The world’s biggest semiconductor maker Tuesday posted a 19% jump in first-quarter earnings, a week after smaller rival Advanced Micro Devices Inc. warned that its revenue would fall far short of Wall Street’s expectations.
Intel said it earned $1.61 billion, helped by cost cuts and a tax cut of $300 million. Revenue fell 1%.
Intel shares gained 29 cents to $20.98, then rose another 2% to $21.41 in after-hours trading.
The Santa Clara, Calif.-based company is locked in a fight with Sunnyvale, Calif.-based AMD, which recently has posed a strong challenge to Intel’s supremacy in the semiconductor market.
In the last two years, AMD chipped away at some of Intel’s market share, particularly when it came to less-expensive chips. But industry analysts said Tuesday that Intel appeared to have taken back some of the lost sales by cutting its prices and offering a slew of new products.
The price cuts driven by the competition between Intel and AMD show little sign of easing up. The average selling price of a microchip dropped more than 13% in January and February over the comparable period last year, according to Santa Clara-based VLSI Research Inc.
Intel is “still struggling short-term because of the price war,” said Aida Jebens, senior economist with VLSI. “But they keep introducing new products to the market, which shows their ducks are lined up and their plans are solid.”
Intel said its second-quarter revenue would decline 4%, compared with the 2% decline analysts had expected. But despite the shrinking revenue, Intel said it expected its profit margins to improve for the full year. Analysts took that as a sign that Intel was expecting a reprieve from the price war.
“The fact that the company is telling us that means they think they are getting their pricing power back,” said Doug Freedman, senior analyst with American Technology Research. “Their product costs are declining faster than pricing.”
Intel’s revival has taken a toll on AMD. In addition to lowering its revenue forecast, AMD said it would cut spending on research and development. The company will report its first-quarter results Thursday.
AMD shares fell 5 cents to $13.47. They have fallen more than 60% since hitting $34.96 in June.
Intel earned 27 cents a share. Excluding one-time items, Intel earned 22 cents a share, matching analysts’ estimates.
“The first quarter marked another solid period for our microprocessor business,” said Paul Otellini, Intel’s chief executive and president.
In a conference call to discuss the company’s earnings, Otellini cited lower production costs and greater demand for microchips featured in mobile devices.
Intel also cut 11,000 jobs, or about 11% of its workforce.
