Intel declined to predict future sales in an uncertain economic environment on Thursday and warned of rapidly deteriorating margins as its production lines ran on reduced capacity.
The world’s biggest chipmaker kicked off what seems certain to be a grim earnings season for technology companies by reporting a 90 per cent fall in profits and a drop in revenues it said was unprecedented in the past 20 years.Intel said fourth-quarter profits were $234m, down from $2.3bn a year earlier. Revenues of $2.8bn were in line with a second warning on the quarter it delivered last week but were 19 per cent lower than third-quarter sales.
“This is only the second time in 20 years that our fourth-quarter revenues were below the third quarter, the last being the year 2000 when revenues declined less than 1 per cent,” Paul Otellini, chief executive, told an analyst conference call.
“The pace of the revenue decline in the quarter was dramatic and resulted from reduced demand and inventory contraction across the supply chain,” Mr Otellini said. He said Intel was assuming inventory reductions in the current quarter.
Intel is the largest semiconductor company by market cap -- in fact by market cap it is nearly twice as large as its nearest rival. That makes this an important announcement. So let's take this piece by piece:
Intel declined to predict future sales in an uncertain economic environment. Translation: we have absolutely no idea what the hell is going to happen. But it's probably not good. If things were good we would be telling you repeatedly to get people to buy our stock.
.....warned of rapidly deteriorating margins as its production lines ran on reduced capacity. Translation: we've got some big problems. As a big company we rely on out ability to scale our costs. But when orders dip below level x we've got problems. And orders are below that magic level, so we've got problems.
.....and a drop in revenues it said was unprecedented in the past 20 years. Translation: we've never seen it this bad before. As a result, we're probably going to become extremely cautious over the next two quarters. That means lack of capital investment, lack or hiring ... you get the idea. And if we're doing that, you can bet our competition is as well.
“The pace of the revenue decline in the quarter was dramatic and resulted from reduced demand and inventory contraction across the supply chain,” Translation: the economy is falling off a cliff right now.