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  • Aug 22, 2014
  • Updated: 8:49am
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Intel cuts 2013 revenue forecast, capex as PC industry sags

Intel sees softer sales in China than earlier anticipated

PUBLISHED : Thursday, 18 July, 2013, 11:42am
UPDATED : Thursday, 18 July, 2013, 11:42am

Intel cut its full-year revenue forecast and said it is scaling back capital spending as it adjusts to a painful contraction of personal computer sales and economic weakness in China, one of its biggest markets.

The forecast and cut in capital spending were announced in the company’s quarterly earnings report, the first under new Chief Executive Brian Krzanich.

The soft-spoken manufacturing guru, who took over as chief executive in May and faces falling PC sales and a hyper-competitive mobile market, was quick to acknowledge Intel’s past errors. He said the top chipmaker would aggressively speed up the rollout of new Atom mobile chips.

“Intel was slow to respond to the ultra-mobile PC trends,” Krzanich said. “We will move Atom even faster to our leading-edge silicon technology.”

Within days of taking over in May, Krzanich launched a sweeping company reorganisation. He has also been spending a lot of time with manufacturing customers, meetings that will quickly lead to more mobile business for Intel, Chief Financial Officer Stacy Smith told Reuters.

Intel dominates the PC industry, but it has been slow to make its chips suitable for smartphones and tablets.

Smith said that in the fast-expanding mobile market, where Qualcomm is the leading chip supplier, customers want more options.

“They want alternatives in a market kind of becoming dominated by one player and they see us as being a very capable supplier,” Smith said. “They wanted to look Brian in the eye, and now he’s looking back and saying ‘We’re going to double our efforts here.’”

Smith, said in an earlier interview on CNBC that the chipmaker had seen softer sales in China than it had anticipated.

Faced with slow demand, Intel said it was cutting this year capital spending to US$11 billion, plus or minus US$500 million. The cut follows a similar reduction from US$13 billion to US$12 billion in April.

Intel said it expects this year revenue to be flat from the year before. Last quarter Intel forecast a low single digit percentage increase this year.

Bernstein analyst Stacy Rasgon compared Intel’s reduction of expectations on Wednesday to a similar “reset” last year.

“Last year, they had a come-to-Jesus moment two-thirds of the way through Q3. This time at least they seem to be reacting a bit sooner, but you have to ask if it’s enough,” Rasgon said.

Global shipments of personal computers dropped 11 per cent in the second quarter, the fifth straight quarterly decline in a market that has been devastated by the popularity of tablets.

Intel has shown some recent signs of improvement in mobile, progress Krzanich is eager to build on.

Samsung Electronics has chosen an Intel processor for one of its top-tier Android tablets for the first time.

And in May, the US chipmaker unveiled Silvermont, the most extensive overhaul of its mobile processors to date, with improved performance and lower power consumption that some experts believe might help it compete better against Qualcomm.

Shares of Intel have risen about 16 per cent this year and trade at the equivalent of 12 times expected earnings, a valuation similar to that of Qualcomm’s stock.

Krzanich left open the possibility of opening Intel’s factories to more customers making chips designed with architectures that differ from Intel’s own, a side business that so far has remained very small. Wall Street has speculated in recent years that Intel could strike a deal to manufacture Apple’s iPhone chips.

“We are taking each customer individually and looking at them as an opportunity and what is the right thing for the shareholders,” he said.

Intel posted second-quarter revenue of US$12.8 billion and said revenue in the current quarter would be US$13.5 billion, plus or minus US$500 million.

Analysts expected US$12.896 billion in revenue for the second quarter and US$13.732 billion for the current quarter, according to Thomson Reuters I/B/E/S.

For the second quarter, Intel reported net earnings of US$2.0 billion, or 39 cents a share, in line with expectations. That compared with US$2.827 billion, or 54 cents, in the same quarter last year.

Shares of Intel fell about 4 per cent in extended trade after closing down 0.41 per cent at US$24.15 on the Nasdaq.

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