Intel's net profit drops 90 percent

Intel's fourth-quarter profit plunged 90 percent from a year earlier, as the chip maker battled a worsening economy and recorded a steep loss from investments.

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Intel's fourth-quarter profit plunged 90 percent from a year earlier, as the chip maker battled a worsening economy and recorded a steep loss from investments.

The company recorded net profit of US$234 million for the quarter ended 27 Dec., compared to $2.27 billion in last year's fourth quarter. The net profit also fell short of the $257.22 million consensus expectation from analysts polled by Thomson Reuters.

The results included a loss of $1.1 billion from equity investments and interest, primarily due to a billion-dollar reduction in the value of Intel's investments in Clearwire, the company said.

The company's fourth-quarter revenue was in line with lowered expectations of $8.2 billion. Fourth-quarter revenue was down 23 percent year-over-year and 19 percent sequentially. Revenue from microprocessors and chipsets was lower compared to the third quarter.

The bright spot for Intel this quarter was the sales of Atom chips that go into netbooks, small laptops designed for web surfing and productivity applications. Revenue from Atom microprocessors and chipsets was up 50 percent sequentially to $300 million.

Intel did not project revenue guidance for the first quarter of 2009, citing "economic uncertainty and limited visibility."

While the economic environment is uncertain, the company is adjusting its business plans to adapt to build for the future, said Paul Otellini, Intel president and CEO, in a statement. The company is entering new markets and has cut costs by around $3 billion since 2006, he said.

The restructuring yielded $800 million in savings in 2008, Otellini said during a conference call on Thursday. The company ended the year with approximately 84,000 employees, down 3 percent from a year ago.

"Intel has weathered difficult times in the past, and we know what needs to be done to drive our success moving forward. Our new technologies and new products will help us ignite market growth and thrive when the economy recovers," Otellini said.

The company hopes to ramp up to the 32-nanometer process technology to lower chip-manufacturing costs and increase production. It will then be able to make more chips at lower costs, which should add efficiencies to the production process, said Stacy Smith, Intel's chief financial officer, during the call.

"We are absolutely prioritising the investment that it takes to get to 32-nm process technology ... we are going to get there as fast as we possibly can. That gives us a performance advantage, cost advantage and allows us to get to this higher level of integration that the future markets we want to serve requires," Smith said.

Intel hopes to fit integrated chips made using the new manufacturing process into devices like set-top boxes and TVs, which will create new markets and revenue opportunities, Smith said.

Netbooks emerged as a steady revenue stream for Intel, and the segment is ripe for growth in the tough economic environment, Otellini said. The company established the business and has a good base to grow with, but competition is heating up, he said. New competitors are entering Intel's turf with netbooks that offer unique applications, Otellini said. For example, the netbook is being marketed as a communications device.

"There are already models in Japan, for example, where you get a netbook for 1 Yen (US$0.01) if you sign up to a wireless subscription. People will play with those models much like they did in the early days of the cell phone, and it's difficult to figure which of those will stick," Otellini said.

Looking ahead, Intel will also continue to invest in research and development to have a gaggle of new products ready when the recession ends, Otellini said.

The company's new Nehalem microarchitecture is expected to make its way to new products like desktops and notebooks by the second half of the year, Otellini said. The new architecture will offer incremental growth opportunities in new markets and form factors. Intel launched its first Nehalem-based Core i7 chips for high-end gaming desktops in November.

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