Intel is on track to meet its annual financial targets as it prepares to divest of its flash memory business, cut more costs and introduce a variety of new products to the market.
This is according to an Intel director for Europe, Middle East and Africa region, Jeff Clark.
"We believe we had a strong performance in our second quarter, despite missing our profit margin forecast of 48%. Our experience from the market is we have great new products and people want to buy them," he says.
Last night, the NASDAQ-listed microprocessor supplier told investors it had met its second quarter revenue target, delivering $8.7 billion, a year-on-year increase of 8%. Net income for the quarter increased 44%, to $1.3 billion and earnings per share rose 47%, to 22 US cents.
Despite the growth, international media and analysts pointed to a declining profit margin as evidence of the competitive nature of the microchip market.
The Washington Post noted the company's shares fell "amid signs that fierce competition continues to push chip prices lower" and added that were it not for one-time tax gains, Intel's profit for the quarter would have been lower by 3c per share.
Competitive forces
However, Clark says the lowering profit margin during the quarter was not a product of competitive forces in the market.
"What some people decided to call a price war between ourselves and AMD was actually a proactive decision by Intel to clear old stock so we could bring in new products. I firmly believe next quarter's results will show our margins reaching the 51% mark," he explains.
The world's two largest microprocessor suppliers Intel and Advanced Micro Devices (AMD) are largely believed to be engaged in a war for market share. Both companies still cite the intensely competitive nature of the industry and pricing pressures as risk factors in their financial filings.
Another reason for the declining profit margin, says Clark, was the performance of its flash memory business.
"Demand for NOR flash products was lower than we expected, impacting on our gross margin by about one point. However, we have entered into an agreement with STMicroelectronics and Francisco Partners to form a new, independent company by combining our NOR business and with STMicroelectronics' NOR and NAND flash businesses. This transaction should close by the fourth quarter," he notes.
Advancing through innovation
Although cost-efficiency has become a way of life at Intel, Clark says the company is investing in the development of a wide range of new products to hold on to its top position.
"We have a lot of new products coming out this year and even more planned for 2008. We are shrinking the chip again - just think, with 45nm transistor technology we can have 200 chips in the width of a hair. And we believe we can go down to 32nm and even 20nm," he comments.
Additionally, Clark says innovation at its new factories have resulted in improved processes, which will deliver better yields and throughputs at lower costs.
"It's not just about cutting costs; it's about delivering on strategies. For example, if we want to deliver on our mission to connect the next one billion people, then we are going to require the capacity to make that technology affordable and available within a relatively short space of time," he says.
And this strategy is becoming increasingly important, given that Intel's emerging market did better than expected in the last year.
"Growth in mature markets is still available, but we are taking emerging markets very seriously. Take SA for instance, this is our 10th year in the country. We've made substantial investments in the area and we are pleased with the returns," he says.
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