Intel: What Went Wrong

"Although the year did not finish as strong as we expected, we look forward to a year of solid growth in 2006, thanks to a very strong product road map," said Otellini.

Intel recorded $38.8 billion in sales for its full 2005 year, up 13.5% from 2004. The company earned $8.7 billion in net income, or $1.40 EPS.

But the company outlook for 2006 was not very inspiring, with annual revenue projected to increase between 6% and 9%, after three consecutive years of double-digit growth. Intel CFO Andy Bryant said the pace was somewhat slower than in recent years due to the outlook for the worldwide economy in 2006.

That Intel offered full-year guidance marked a change from its recent practice of making forecasts strictly for the current quarter. Otellini said the company had decided to revert to an earlier practice of providing full-year guidance, while doing away with midquarter updates, in order to foster meaningful discussion about the company's long-term strategy instead of focusing attention on short-term results.

The company also projected that revenue in its first quarter of 2006 will be between $9.1 billion and $9.7 billion, below the average analyst expectation of $10.05 billion. Gross margin for the first quarter was pegged at 59%, plus or minus a couple of points.

The forecast stood in sharp contrast to what the Street expected to hear from Intel.

With a slew of recently unveiled products, and new customer Apple Computer(AAPL) shipping Intel-based Macs earlier than expected, many analysts and investors expected the first quarter to be the point at which Intel would rediscover its stride.

But according to Intel, a worse-than-expected inventory buildup among Intel customers is limiting new orders for the company's microprocessors. That inventory build means that sales in Intel's first quarter could be off by 8% -- the midpoint of its guidance -- vs. Intel's historical first-quarter seasonal decline of 5%.

For its fourth quarter, Intel attributed flat sequential sales in the Asia Pacific region, and a 3.5% sequential decline in sales in the Americas region, to lower-than-expected demand for desktop processors among certain OEM customers.

Sales in Intel's desktop microprocessor group, which accounts for the company's largest source of revenue, were down 6.2% from the year-ago period. Notebook processor sales during the quarter, on the other hand, jumped 40% from a year ago.

Overall, the company shipped more microprocessors than ever in the quarter. But the average selling price of its microprocessors experienced a slight decline in the quarter, Intel said.

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