Intel profit rises despite flat chip sales

Intel posted a profit of $1.6 billion for the first quarter, a rise of 19 percent over that quarter last year, thanks to reduced personnel costs after recent layoffs and a $300 million tax reversal, the company said Tuesday.

The company reported $8.9 billion in revenue for the quarter ending March 31, a drop of 1 percent from that period last year and narrowly below the average Wall Street expectation of $9 billion, according to analysts polled by Thomson Financial. It also reported earnings per share of $0.27, an increase of 17 percent over its performance in the first quarter of 2006 and well above the average analyst forecast of $0.22 per share. However, the company reported that the tax reversal inflated its earnings figure by $0.05, so Intel would have matched the forecast exactly without that charge.

Under the strain of a price war with competitor AMD, Intel said it had a decline in microprocessor unit sales and selling prices compared to the fourth quarter of 2006.

Prices for the new Core microarchitecture chip family “held up well in a very competitive environment,” CEO Paul Otellini said. Still, much of the company’s profit came from cost reductions because Intel was one quarter ahead of schedule in reducing its workforce from 102,000 to 92,000.

Those same factors will push Intel to collect forecasted second quarter revenue of $8.2 billion to $8.8 billion, CFO Andy Bryant said in a conference call with analysts. The midpoint of that range would mark a decrease of four percent from the first quarter but an increase of six percent year over year, he said.

Bryant credited the company’s first quarter success to spending cuts made in its corporate reorganization. Intel cut spending by 17 percent in its research and development as well as its management and accounting budgets for the first quarter, and plans to hold that number flat through the second quarter at a range of $2.6 billion to $2.7 billion.

Intel also expects a rise in its mobile segment revenues next quarter, thanks to the planned May launch of its “Santa Rosa” next-generation Centrino laptop platform, Otellini said. The company has already started shipping that bundle of processor, chipset, and wireless components to PC vendors so they can build new notebooks around it. The official name for those products will be Centrino Duo for the consumer version and Centrino Pro for the business version, which includes elements of Intel’s vPro desktop IT management platform, he said.

In fact, Intel might have drawn better revenue this quarter if some customers had not postponed buying new notebook PCs until the Santa Rosa launch, one analyst said.

“We believe both sluggish PC unit growth and pricing actions to protect/gain share will weigh on near-term results. We also believe the notebook market was less than seasonal ahead of the Santa Rosa platform launch,” said Doug Freedman, an analyst with American Technology Research, in a report released Monday.

However, Intel will soon begin to enjoy the fruits of its competition with AMD, he said.

“At this point, we cannot call an end to the price war (with AMD) that has been draining profits from the microprocessor market. Looking further out, we believe Intel’s recent share gains and pending product launches will help the company command better (average selling prices) and margins in the back half of this year,” said Freedman.