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July 14, 1998

INTEL STRUGGLES THROUGH SECOND QUARTER

By CBR Staff Writer

Intel Corp may be the biggest maker of microprocessors in the world, but the Santa Clara giant is having to struggle through the same cut-throat market conditions as its smaller rivals, and profits have taken a sharp downturn in the second quarter. Net profits fell 29% from last year to $1.17bn while revenues were down 0.6% at $5.93bn with sequential, revenues down 8% from the first quarter. Gross profit margins for the quarter fell by 5 points to 49%, which the company blamed partially on the write down of inventory to reflect the falling costs of chip production throughout the quarter. The cost of producing the higher volume processors fell so sharply in the period that end of quarter adjustments to stock were bigger than anticipated. Further pressure on margins came from the more predictable effects of falling chip prices in a business with high percentage of fixed costs. Looking forward to the third quarter, chief financial officer Andy Bryant said he expected revenues to be flat or slightly up and promised an improvement in gross margins. Pushed for further guidance on what the future looked like, Bryant said, It’s tough to call quarter three because of the slow start, so we’ll stick with flat to slightly up and see if we can beat it. Bryant was referring to the seasonal weakness experienced in August. Geographically, Intel said revenues from the Americas and Japan rose while Asia-Pacific was flat and Europe was down sequentially. The company also said it was trimming its staff costs with a reduction of 750 employees in the quarter, not including the 1,800 gained through Intel’s acquisition of Digital’s semiconductor manufacturing operations. The company said it had targeted reductions at 3,000 people by the end of the year, mostly through attrition. Current staff numbers total 66,700. Asked about the companies predictions for the PC market, Intel’s official position was that PC growth would be in the low to mid teens for the coming year. Intel repurchased 258 million of its own shares in the quarter, costing it $1.7bn in cash. á

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