Intel profits dive 39pc on back of price war

17 Jan 2007

A cutthroat price war with smaller rival AMD is believed to be the driving force behind Intel’s fourth quarter profits plunging 39pc as well as the company paying restructuring charges.

Intel, which employs over 4,000 people in Ireland, earned US$1.5bn or 26 cents a share compared with US$2.45bn or 40 cents a share last year. Analysts were e

Revenues for the fourth quarter fell 5pc to US$9.7bn from US$10.2bn a year ago.

Intel has been facing tremendous competition in recent years from Advanced Micro Design (AMD) and things took a dark twist last year when longtime Intel customer Dell agreed to use AMD processors in some of its products.

To fight back Intel cut prices on some of its microprocessors, a move that not only hurt profits but has now raised interest in the European Union.

European Union investigators have recommended that the Competition Commissioner Neelie Kroes formally charge Intel with thwarting competition in the chip market.

While the price war has been good for PC buyers – with computers falling 15pc on average in price – Intel still had a tough year.

In September the company announced a major restructuring programme that called for the reduction of 10,500 workers, some 10pc of the company’s workforce.

Intel said that restructuring charges impacted earnings per share by about 1.5 cents. The overhaul is expected to save Intel US$3bn a year by 2008.

The company ended 2006 with 94,100 people, compared with 102,500 workers in the second quarter of last year.

Intel shares, which closed last night at US$22.30 fell 97 cents to US$21.33 in after hours trading.

Intel says that despite the decrease in profits, sales of new products were strong. It said it sold record numbers of its new microprocessors which command higher prices during the quarter.

“Intel’s product and technology leadership yielded a strong fourth quarter with higher selling prices and record unity shipments in the fastest growing segments in the market,” said Intel chief executive Paul Otellini.

By John Kennedy