Intel Shares Fall on Price War Worries

Includes: AMD, INTC, STM
by: SA Editors

Shares of Intel Corp were down 3.5% following its Q4 earnings release in which it said it earned $1.5 billion ($0.26/share), beating the $0.25 average forecast, on revenues of $9.7b. This was a sharp decline from Q4'05 when Intel reported earnings of $2.45b ($0.40/share) on revenue of $10.2b. Intel-INTC-1yr-chart-01-16-07 Gross margin improved to 49.6% compared to 49.1% in Q3. It gave Q1 sales guidance of $8.7-$9.3b; vs. the average Street estimate of $8.93b, and projected its gross profit margin would fall to 49% in Q1 2007. The fall in margins, which are down from 61.8% in Q4 2005, indicate its price war with AMD continues to take a heavy toll; investors had hoped Q4 margins would show signs of bottoming. In its conference call, CFO Andy Bryant admitted 2006 had been "a very tough pricing year," and said, "We're going to have to fight to win orders." Separately, Reuters reports Intel "may be poised to sell its flash memory operations in Israel." Intel sources were cited on the financial news web site of Ha'Aretz newspaper saying STMicroelectronics would be the purchaser. The expected sales price is $1.5b, excluding debt.

• Sources: Intel Q4 2006 Earnings Call Transcript, Intel press release [pdf], Reuters [I, II], New York Times
• Related commentary: Intel Earnings Preview: Bleeding From Price War?, Can Intel Face The Competition?, AMD Issues Q4 Earnings Warning, Shares Tumble in Extended Trading,
• Potentially impacted stocks and ETFs: Intel (NASDAQ:INTC), Advanced Micro Devices (NASDAQ:AMD), STMicroelectronics NV (NYSE:STM). ETFs: Semiconductor HOLDRs (NYSEARCA:SMH), iShares Goldman Sachs Semiconductor (IGW), PowerShares Dynamic Semiconductors (NYSEARCA:PSI), SPDR Semiconductor (NYSEARCA:XSD)

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