Intel Shares Plunge on Earnings Report

SAN FRANCISCO (Jan. 16) - While Intel Corp.'s stock was being hammered over disappointing fourth-quarter results, executives at the world's largest semiconductor company found themselves trying to assure Wall Street the faltering U.S. economy was not to blame for its financial difficulties.

Intel's stock plunged more than 14 percent after its profit and sales figures narrowly missed analyst expectations, a shortfall that triggered fears the Santa Clara-based company is more vulnerable to U.S. economic pressures than many investors had believed.

"You hear all of the pundits saying the world is going to go to a trash basket and you worry," Intel Chief Executive Paul Otellini said in a conference call with analysts. "It may be a self-fulfilling prophecy. At this point we don't see anything on the horizon. Our customers don't see anything on the horizon."

Otellini noted that three-quarters of Intel's business comes from outside the U.S. and that the PC business appears to be healthy. The company blamed the shortfall on lower-than-expected sales of NAND flash memory.

Intel was also harmed by microprocessor prices staying flat despite an acceleration in sales during the quarter.

Otellini said, however, that it would be "imprudent" to brush off the economic pressures facing the U.S., and Intel's latest financial guidance reflected that caution.

As the No. 1 maker of the microprocessors that act as the brains of personal computers, Intel's financial results are a valuable gauge of technology spending and PC demand.

With investors already worried about a possible recession and its effects on tech companies, Intel's miss injected further uncertainty into a jittery market. Investors flocked to technology stocks late last year as a safe haven when the mortgage and credit crisis worsened, but they have since retreated.

Intel shares fell $3.21 to $19.48 in after-hours trading following the results' release. The stock had fallen 39 cents to end regular trading at $22.69.

"The stock is reacting as hard as it is because the market was expecting Intel to be at the tail of the dog - not really seeing the weakness we're seeing in retail yet," said Doug Freedman, an analyst with American Technology Research. "But the numbers at the top line suggest they are absolutely seeing this weakness."

Intel posted profit of $2.27 billion, or 38 cents per share, for the three months ended Dec. 29. That compares with net income of $1.5 billion, or 26 cents per share, during the same period a year earlier.

Analysts polled by Thomson Financial were expecting profit of 40 cents per share.

The company struggled with higher-than-exected charges of $234 million resulting from the proposed spinoff of a division that makes NOR flash memory. NOR flash has been losing ground to NAND flash memory for use in portable electronic devices.

Intel said those charges - for expected losses - reduced profit by 2.5 cents per share.

Revenues also came in lower than expected.

Intel said it rang up $10.71 billion in sales during the latest quarter, an 11 percent improvement from $9.69 billion in the period a year earlier. But that was about $130 million short of what analysts expected.

"The estimates may have gotten a little ahead of where we are, but I'm very pleased with the progress the company made over the course of the quarter," Intel Chief Financial Officer Stacy Smith said in an interview. "We start 2008 exceptionally well positioned."

Intel's gross profit margin, a key figure scrutinized by analysts to gauge how well a company is managing its pricing and manufacturing costs, came in at 58.1 percent of revenues, an increase over the third quarter.

The increase was driven by higher sales and lower costs of producing chips.

Intel is ahead of its rival Advanced Micro Devices Inc. in moving to the latest generation of chip technology, which helped Intel drive down the cost of producing its chips while making them more powerful.

For the full fiscal year, Intel reported net income of $6.98 billion, or $1.18 per share, up 38 percent from 2006. Annual revenue rose 8 percent to $38.33 billion.

In the first quarter, Intel expects revenue between $9.4 billion and $10 billion, in the lower end of the range analysts were expecting. Gross profit margin is expected to be 56 percent of revenues, plus or minus a couple percentage points.