Filter looks at the day's top technology news through snapshots and analysis of what the world's media outlets are covering. Washingtonpost.com's new Mon.-Fri. feature is penned by technology reporter Cynthia L. Webb. If a technology story breaks, a company falters or triumphs, or there's a new trend in technology, Filter wants you to know about it.
By Cynthia L. Webb washingtonpost.com Staff Writer
Wednesday, July 14, 2004; 9:41 AM
Wall Street is a fickle place these days. When rosy earnings come out, financial analysts say it's a sign of a rejuvenating tech sector. But if any hiccups arise, investors say the recovery is flagging. And when a company as mighty as Intel Corp. fails to impress the Street, the high-tech sector gets another black eye.
Despite rising revenue and nearly doubled profit for its second quarter, the Santa Clara, Calif.-based company spooked investors Tuesday with its forecast of weaker profit margins in the months to come. "Intel seems to have set the agenda, so expect many tech stocks in the Nasdaq to come under brutal attack," David Buik, a spokesman for Cantor Index, a bookmaking shop in London, told Reuters. The San Jose Mercury News said "the chip giant's upbeat news did little to ease Wall Street's fears that the nascent tech recovery already is slowing down." And the Financial Times noted that "Investors' nerves were rattled in the run-up to the announcement by concerns the industry could be heading into a cyclical downswing during the remainder of this year and 2005." More gloom from the New York Times: "The report sent jitters through the technology industry amid growing concerns that a broad recovery is not materializing as quickly as many executives had predicted."
Intel said it earned nearly $1.8 billion on revenue of $8.05 billion, up from $896 million on revenue of $6.8 billion in the same quarter last year.
Andy Bryant said cell phone chip sales "should remain strong enough in the next three months to help the company take in $8.2 billion to $9.2 billion of revenue, slightly more than it typically would expect this time of year," The Washington Post reported, quickly focusing in on the downside: "But flash memory chips are only a relatively small part of Intel's business. More than three-quarters of its revenue comes from sales of chips used in computer processors, and Intel's earnings report did little to allay investor concerns that too many companies are producing too many computer chips at a time of slowing demand, creating an oversupply that may push down prices and profits. Tech stocks shuddered earlier this week in the wake of a Merrill Lynch report issued Monday that warned of the looming problem and suggested that share prices for many chipmakers may be too high to justify. The report advised investors to avoid Intel."
More from the Post: "Bryant acknowledged the oversupply concern yesterday, saying that the company is working to get rid of excess inventory and may do so by reducing the workload on some of its chip production factories." (The San Jose Mercury News ran a good piece yesterday with chip makers reacting to Merrill's report.)
• The Washington Post: Intel 2nd-Quarter Profit Doubles (Registration required)
• San Jose Mercury News: Chip Firms Put On The Defensive (Registration required)
The Mercury News focused on inventory issues: "Among the big numbers Intel reported is one that unnerved investors: Inventories of unsold chips are piling up. So much so that the Santa Clara chip maker is putting the brakes on manufacturing, which means profits will fall later in the year." The Los Angeles Times reported that Intel's "gross profit margin for the rest of the year would be slightly lower than previously projected" due to "unexpectedly brisk sales of flash memory chips and motherboards, which are less profitable than its flagship chips." More from the Times: "Although total sales and profit will rise as a result, the mix of products will make for a lower overall margin. That news prompted investors to shave nearly 5% off the value of Intel shares. After losing 10 cents to close at $26.14 in regular Nasdaq trading, the stock fell as much as $1.29 to $24.85 in after-hours trading."
USA Today analyzed Wall Street's negative reaction to Intel's report: "Intel said its inventory of unsold products jumped 15% from the previous quarter. One reason: Intel is making chips faster than expected. To compensate, Intel is pulling back on the planned ramp-up at some factories. Another bad sign: Processor prices were lower than expected, prompting Intel to reduce gross profit margin estimates for the year to about 60% from 62%. Growth of lower-margin products, such as flash memory, contributed."
The Wall Street Journal said of Intel's down quarter that an "equally important factor was Intel's transition to a new manufacturing process, which is having an effect on the company's inventory of new chips, as well as on the cost of producing them. Intel actually managed to churn out more working chips on each silicon wafer than it had anticipated, but consequently built up inventories of unsold chips that the company expects to have to sell in the future at slightly lower prices."
• The Wall Street Journal: Intel's Net Soars but Weakness In Profit Margins Mars Results (Subscription required)
