Market Shift To Cheaper Pcs Cuts Into Intel’s Earnings

Intel Corp.’s third-quarter earnings are expected to rise, though less than in past quarters, as the company sells less-profitable chips to power the boom in lower-priced personal computers.

Intel is expected to report earnings Tuesday of 91 cents a share, the average estimate of 34 analysts from IBES International Inc. Profit was $1.31 billion, or 74 cents, on revenue of $5.14 billion in the year-earlier period.

Most major computer makers are selling $1,000 PCs that run on lessadvanced Intel chips that are cheaper and have narrower profit margins. Intel also is facing competition in this market from Advanced Micro Devices Inc., which aims to sell comparable chips for about a quarter less, analysts said.

Intel, whose chips are found in 85 percent of the world’s PCs, is expected to cut prices in November as much as 27 percent. The deeperthan-expected cuts will come as Intel tries to move customers to the faster Pentium II chips and other speedy ones.

“The PII won’t do poorly, but in the longer run that chip might not sell as well as Intel hoped because of the increasing popularity of the $1,000 PC,” said Dan Scovel, an analyst at Fahnestock & Co.

That may mean a rocky first half of next year as the Santa Clara, California-based chipmaker spends more on advertising, its depreciation rises and it continues to cut prices aggressively, said analyst Drew Peck at Cowen & Co.

“It’s in their interest to sacrifice a few points of gross margin,” Peck said. Gross margin is the percentage of sales left after product costs are subtracted.

Other analysts saw a silver lining.

“Things are so bad this quarter that all the quarters from here are going to be better,” said analyst David Wu at ABN Amro Chicago Corp. in New York.

Gross margin will stabilize, average selling prices for its microprocessors will decline at a slower rate and revenue will increase, Wu said.

There was speculation a couple of weeks ago that the company would issue a profit warning, as it did in the middle of the second quarter, which sent ripples through the stock price. This time there was no such warning.

Investors and analysts took that to mean Intel will report earnings in line with expectations. But all will watch what Intel says about the fourth quarter, typically the strongest as holiday shopping surges.

Intel shares fell 1-11/16 to 93.

Some of the stocks that moved substantially or traded heavily Friday on the New York Stock Exchange, Nasdaq Stock Market, and American Stock Exchange.

NYSE

CoreStates Financial, up 1-3/8 at 73-13/16.

Mellon Bank, down 1-15/16 at 52-15/16.

Pittsburgh-based CoreStates rejected a takeover bid by Mellon Bank late Thursday, and Mellon agreed to withdraw the offer. The combined banks would have had nearly 30 percent of the market in Pennsylvania and would have ranked as the 11th biggest bank in the country.

Dallas Semiconductor, up 6-9/16 at 55.

The Dallas-based chip maker reported third-quarter earnings that topped analysts’ estimates.

Westinghouse Electric Co., down 7/8 at 26-3/4.

The Pittsburgh-based company said it will cut 2,000 industrial jobs this year. Westinghouse expects the restructuring will reduce earnings by $125 million in the fourth quarter.

NASDAQ

ACT Manufacturing, down 9-3/16 at 19-13/16.

The Hudson, Mass.-based provider of electronic manufacturing services expects its third-quarter results to fall below Wall Street analysts’ estimates.

Horizon Financial Services, up 5-1/4 at 26.

The Oskaloosa, Iowa-based company declared a two-for-one stock split, payable Nov. 10 to shareholders of record Oct. 20.