Intel chip sale slump forces revenue review

Processors Giant issues profit warning as BTO & CTO take hold.

Intel has warned of a slump in its chip sales, set to wipe up to ten per cent of revenue, due to a fall in OEM demand for its processors.

The chip giant originally forecast in January that revenue for Q1 would be flat, compared to fourth quarter 1997 figures of $6.5 billion. It has now been forced to revise the outlook for the first quarter ending 28 March. Analysts believed that Intel will sell around 20.5 million chips in the quarter, down 2.5 million from last quarter.

No revised projections for net profits have been given, but turnover is now expected to be about $5.85 billion. The company will also be hit by a one-time charge of $165 million, related to the acquisition of Chips and Technologies last year.

Gross margins are expected to be about 53 per cent, a fall from 59 per cent last quarter. Over the long term, it predicted margins will hover around 50 per cent.

As predicted in PC Dealer (5 November, 1997), the move by vendors towards build-to-order (BTO) and configure-to-order (CTO) models has finally begun to take its toll on the volumes Intel can ship.

An Intel Europe representative conceded that BTO/CTO manufacturing - where the production of PCs is based on demand signalled by the channel, rather than by volume sales pushed through by the vendor - had an adverse impact on the company's performance. 'The downturn in demand is seen as a result of the model,' he said.

Despite the effects, the representative insisted that Intel would not be changing is own business model as a direct result of the slump. He also rejected the suggestion that the decline was due to a loss of market share to rival chip manufacturers AMD and Cyrix.

Twenty-four hours after Intel's profit warning, Motorola followed suit on 6 March, declaring that first quarter net income would be 'well below Wall Street estimates'.