Intel narrows financial outlook for quarter

Intel narrowed its previous guidance for fourth-quarter revenue this week on the strength of its microprocessor business, but...

Intel narrowed its previous guidance for fourth-quarter revenue this week on the strength of its microprocessor business, but will take a $600m charge in the quarter to account for reduced long-term growth prospects in its XScale processor business.

Fourth-quarter revenue is now expected to fall between $8.5bn and $8.7bn. During its third-quarter earnings conference call, the company forecast that fourth-quarter revenue would fall between $8.1bn and $8.7bn.

Intel credited "solid seasonal growth" in its Intel Architecture business, which develops and markets its Pentium 4, Pentium M, and Xeon processors, as a reason behind the company's move to the high end of its previous range.

But the long-term growth prospects of the Wireless Communications and Computing Group (WCCG) business are not as high as Intel had once thought, the company said. Therefore, it will record a $600m charge related to an impairment in goodwill.

The WCCG business consists of Intel's XScale processors for personal digital assistants and mobile phones, its PXA800F chip for data-enabled mobile phones, and its flash memory business.

Each year in the fourth quarter, Intel examines its business units and determines whether the value of those units is in line with the value they carry on the company's balance sheet, said Andy Bryant, Intel's chief financial officer. The impairment charge relates primarily to an acquisition Intel made in 1999.

Intel purchased DSP Communications for about $1.6bn in cash in October 1999 for the company's digital cellular processor technology. The assets acquired in that transaction have since declined in value, requiring the company to write down the goodwill value of those assets, Bryant said.

Goodwill measures intangible assets, such as a brand name, that do not have a specific cash value but increase the earning power of a business.

Some of the products that were developed with technology and engineering talent from that acquisition include the PXA800F, also known by its codename Manitoba, Bryant said.

The PXA800F includes a processor, flash memory, and a digital signal processor on a single chip. It was Intel's first chip designed as a single package for next-generation mobile phones, but sales of those phones have not grown as strongly as Intel thought they would heading into 2003, Bryant said. This led to lower-than-expected sales of the PXA800F chip and hurt the profitability of the division, Bryant said.

Bryant declined to answer a question from a financial analyst about possible management changes at WCCG as a result of the impairment charge.

"This is unfolding as an unusual quarter," Bryant said, adding that his enthusiasm for the projected fourth-quarter revenue from the Intel Architecture business was tempered by the need for the impairment charge, he said.

Research and development expenses will come in a little higher than expected for 2003. At $4.4bn they will be up from previous expectations of $4.3bn, Bryant said.

Tom Krazit writes for IDG News Service

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