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October 12, 1999

Intel Misses Again in Q3

By CBR Staff Writer

Intel Corp posted earnings Tuesday that disappointed Wall Street for the second consecutive quarter as average selling prices and gross margins came in lower than expected. The chip maker reported net income for the quarter down 6.5% year-over-year at $1.46bn, or $0.42 per share. Revenue for the period rose 8.9% to $7.33bn from $6.73bn a year ago.

Excluding $333m in one-time charges from acquisitions and $121m in related amortization costs, earnings amounted to $0.55 per share, up from $0.44 in the year-ago period but shy of the $0.57 analysts surveyed by First Call were expecting. In the wake of the announcement, Intel shares fell more than $5 in after-hours trading yesterday after closing the session slightly up at $76.6875.

Intel said overall gross margins slipped to 58.7% in the quarter from 59.4% in the prior quarter, after it had predicted in July that margins would see a sequential increase. A decline in average selling prices of chips – due to increased penetration of the lower-priced market segment and delays in ramping up 0.18 micron parts – negatively impacted margins. Increased start-up costs for newer chips was also a factor, the company said. Overall spending rose 5% from the preceding quarter to $1.8bn.

Revenue for the third quarter included post-closing contributions from recent acquisitions, including Dialogic Corp and Level One Communications Inc. Excluding the effects of those acquisitions, revenue increased roughly 7% from the second quarter’s $6.75bn, to about $7.23bn. Shipments of microprocessors, chipsets and flash memory all grew substantially during the quarter, while motherboard shipments were up sequentially and embedded processor and microcontroller unit shipments declined.

For the nine-month period, net income rose 30% to $5.21bn, or $1.50 per share, as revenue climbed 13.5% to $21.2bn. Excluding one-time charges totaling $503m and $205m, respectively, nine- month earnings were $1.65, up from $1.19 last year

Looking ahead, Intel said fourth-quarter revenue should be up from the third quarter and gross margins should rise by a couple of points as it ships more higher-performance chips. Overall spending should be 9% to 12% higher than the third quarter, primarily due to seasonally higher marketing expenses. Amortization of goodwill and other acquisition-related intangibles will amount to $185m, the company said.

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