For the second quarter running,
reported earnings that fell short of Wall Street's expectations -- this time by 2 cents a share.
The chipmaker reported late this afternoon that it earned $1.9 billion, or 55 cents a diluted share, excluding acquisition-related costs, thus falling shy of the 57 cents a share forecast by analysts surveyed by
First Call/Thomson Financial
Intel's shares immediately dropped more than 8%, or 5 points, in after-hours trading. They had ended regular
trading up 3/16 at 76 11/16.
The company's price-slashing strategy has backed up against increased demand, effectively painting the firm into a corner, said Brian Eisenbarth, analyst for
Collins & Company
, which has not done underwriting for Intel. Eisenbarth has a hold rating on the stock.
"Something's got to give," Eisenbarth said. "You can't just keep cutting prices and raising volume."
The Santa Clara, Calif.-based Intel spent a total of $454 million on acquisitions this quarter. Including that figure would put Intel's net income at $1.46 billion, or 42 cents a diluted share, down 6.5% from $1.56 billion, or 44 cents a share, in the 1998 third quarter. Revenues totaled $7.33 billion, 9% more than the $6.73 billion in the comparable quarter last year.
Intel's stock consistently leads the technology sector, for better or for worse, and investors typically pay more attention to the company's predictions for the future than to its earnings at the end of a quarter.
In its second-quarter report, Intel's earnings fell short of analysts' estimates by 8 cents a share. The stock price wavered but never took a significant dip and actually climbed 3 points two days after the announcement.
This time, though, the stock plunged after hours for two main reasons, analysts said.
First, the final two quarters of the fiscal year were expected to be much more robust for chipmakers.
"As far as the environment goes for semiconductors, it doesn't get much better than this," Eisenbarth said. "If they're going to post decent numbers, now would be the time."
And if the Street was looking toward the future, Intel did not give it much to go on, said Drew Peck, analyst for
, which hasn't worked for Intel.
It was unclear whether Intel had managed its third-quarter accounting to compensate for expected losses connected with the Sept. 21 earthquake in Taiwan, which has strained the boxmakers and hardware partners that buy Intel's chips.
"They were extremely vague in their guidance for Q4," Peck said. "My guess is that Taiwan remains a conundrum for them."
Peck added that the company had provided a projection for the losses it would take due to acquisitions, which he had included in his earnings estimate.
"No matter how you cut it the results were disappointing," he said. "They may have been more disappointing than it looks. In effect, they missed by 4 cents. There seems to be a little bit of bait and switch going on here."
Despite the disappointments, Intel has stormed ahead of the comparatively hapless
Advanced Micro Devices
in recent quarters, using its higher price margins to drop prices and drive its competitors into the red.
In a conference call with analysts, the company declined to clear up vagaries about the coming quarter.
Attempting to tie the company down to a number, Bill Milton, analyst for
Brown Brothers Harriman
, asked Intel officials if the company would meet its historical average quarterly revenue gain -- 13.3% -- in the fourth quarter.
"We're not going to get that precise in this forecast," came the response from Andy Bryant, Intel senior vice president and chief financial officer.
Analysts also questioned accounting procedures that appeared to show an unexplained $400 million one-time charge. In the conference call, the company said it had essentially neglected to report a $400 million charge to the
Intel Architecture Business Group
last quarter and was making up for the oversight by adding a charge this time around.
The company this quarter unveiled its new 64-bit Itanium processors, hardware technology that is already advanced past available software like
Windows 98 operating system, with runs at 16 bits.
Intel also bought IPivot, the electronic commerce equipment maker, for $500 million.
Analysts have interpreted the recent developments -- the new high-end chips as well as the recent acquisitions -- as signs Intel intends to become the premier platform for corporations entering the Internet.