April 20, 2006 – Intel Corp. said its 1Q06 profit fell 38% from a year ago to $1.3 billion on 5% lower sales of $8.9 billion, due to weak demand from the PC sector. Sequentially, sales were down 12%, with profits down 45%. The lower results were in line with guidance issued last month. Gross margins were 55.1%, vs. 59% in January projections.
“We believe PC growth rates have moderated over the course of the past few quarters, leading to slower chip-level inventory reductions at our customers and affecting our revenue in the first half of the year,” said Intel president and CEO Paul Otellini.
Intel projects revenues will dip 4%-10% in 2Q06 to a range of $8.0-$8.6 billion, “below normal seasonal patterns,” as sluggish PC growth has built up inventories at customers, limiting demand. Gross margins are seen falling to 49%, primarily due to lower-margin products in the mix, along with higher microprocessor unit costs and lower microprocessor ASPs.
The company warned about full-year sales, which it now says may drop about 3% compared with 2005, instead of a 6%-9% increase predicted just three months ago. Capital spending budget also was reduced, to a range of $6.4-$6.8 billion in 2006 vs. a earlier $6.7-$7.1 billion range. R&D spending was reduced to $6.1 billion from $6.5 billion.