Intel sees recovery delayed

By Alun Williams

Posted on 17 Jul 2002 at 11:22

Sluggish European demand blamed for poor sales in Intel's second quarter. The chip giant is to cut 4,000 jobs as a result.

Amid falling sales, Intel is downbeat about any immediate economic upturn lead by IT spending. 'The recovery is being pushed out,' said Intel's chief financial officer, Andy Bryant, who anticipates corporate IT investment to remain cautious.

While Intel blamed sluggish European demand for the poor figures, the USA is not faring much better. 'Even though the economy appears to be recovering in other parts of the US,' said Bryant, 'my guess is most chief executives will wait until they are confident of a recovery before starting to spend on IT.'

The results - covering the period April to June 2002 - showed net income as $620m. This figure excludes one-off acquisition-related costs and represents a fall of 39 per cent quarter on quarter and a fall of 27 percent year-over-year. Sales totalled $6.3bn, down 7 per cent on the last quarter but little changed year-over-year.

Intel CEO Craig Barrett remained upbeat about the company's performance in a tough economic environment, highlighting Intel's increase in market share and the growth in its communications businesses, which was led by flash memory revenue.

'Although an overall industry recovery has been slow to materialize, we still expect a modest seasonal increase in demand in the second half,' said Barrett. 'In this environment, our strategy remains the same: Focus on execution, take prudent cost cutting measures, and invest to further improve our competitive position and long-term growth prospects.'

Part of those cost cutting measures is the elimination of 4,000 jobs. Intel had 83,000 employees worldwide at the end of the first quarter, which follows the cutting of 5,000 staff last year. Other cutbacks involve - for the first time - R&D expenditure, which Intel has previously maintained despite hard trading conditions.

Poor European demand was the central message when the chip giant issued a profits warning back at the start of June. Merrill Lynch analysts had already downgraded the status of Intel's stock - from 'strong buy' to 'neutral'. One analyst told the Financial Times that the probability of a strong recovery in the chip market was 'evaporating'. 'We believe that the early cycle semiconductor upturn has now played itself out,' said Joseph Osha.

You can read the full figures on the Intel Web site.