Price war crimps Intel’s margins

Intel Corp., the world's largest chip maker finds itself in a quagmire. It is under pressure from rival Advanced Micro Devices, faces weak demand, and has to settle with falling profits. Ironically, chip making giant reported a 39% fall in profit even when it sold more microprocessors than ever before.

Chief Executive Officer Paul Otellini attributed a 39 percent drop in profit for the fourth quarter to its strategy of cutting prices and releasing new products. He however promised to win back market share from Advanced Micro, Intel's only rival in personal-computer processors. Market analysts also believe that Advanced Micro Devices (AMD) is providing intense competition and that the price war is minimizing the margins.

2006 saw Intel fighting a harder battle than usual against rival AMD. The latter scored an important victory over the former by securing its first purchase orders from Dell. The PC giant until that time bought its microprocessors only from Intel. As expected, the scrap between the two bitter rivals has devolved into a price war.

The fourth-quarter net income of Intel fell to $1.5 billion, or 26 cents a share, from $2.45 billion, or 40 cents, a year earlier. Shares of Intel fell 94 cents, or 4.2 percent, to $21.36 in extended trading yesterday after the announcement.

The shares rose 17 cents to $22.30 in regular NASDAQ Stock Market trading and had gained 10 percent this year on expectations the company making is headway against its smaller rival.

Intel's results included a one-time gain on the sale of the company's wireless and mobile chip division to Marvell Technology for $483 million. The results also included $457 million in one-time charges related to restructuring and asset-impairment charges from the shutdown and sale of a chip factory following the sale to Marvell.

The pressures on Intel are likely to remain throughout 2007. The company says it expects revenues for the current quarter to come in at $8.7 billion to $9.3 billion, vs. a consensus estimate of $8.93 billion.