Intel says production of upcoming Broadwell processors delayed

Intel Corp's third-quarter results modestly beat expectations on Tuesday, but its current-quarter revenue outlook fell short and it warned that production of its upcoming Broadwell processors was delayed.

The world's top chipmaker is betting that its current Haswell PC processor with improved battery life will boost sales for the rest of 2013, beyond the typically strong third quarter when PC manufacturers buy chips in anticipation of holiday demand.

But preparations for the Broadwell chip, which will succeed Haswell, have fallen behind projections by about three months due to technical setbacks, Brian Krzanich told analysts on a conference call following Intel's quarterly report on Tuesday.

He said production of the Broadwell chips, based on the 14 nanometer technology that is ahead of rivals' technology, will not begin until the first quarter.

"We and our (manufacturing) partners have a strong desire to get Broadwell to the market," Krzanich said. "This is a small blip in the schedule."

Chief Financial Officer Stacy Smith said the delay would not affect gross margins in the fourth quarter or impact the competitiveness of Intel's product lineup.

"We're not happy with the one-quarter push but it does point to how difficult these problems are to solve," he told Reuters.

Much of Intel's strength has historically come from its chip manufacturing technology, which is the most advanced in the world and is ahead of rivals by around two years.

Broadwell's delay should have little impact on Intel's sales, said FBR analyst Chris Rolland, although he added that investors were sensitive to any hint of technology trouble at the chipmaker.

"For these guys, their competitive advantage is based on manufacturing. It's certainly a small setback. You don't want to screw with timetables, and you don't want to screw with Moore's law," Rolland said.

With consumers increasingly favoring tablets and smartphones, Intel is wrestling with a slowdown in its core PC market while trying to make inroads in low-power mobile devices.

Adapting to the slow PC industry, Intel also trimmed its 2013 capital expenditure target to $10.8 billion, plus or minus $300 million, from $11 billion, plus or minus $500 million.

Since taking the helm in May, Krzanich has pushed to improve Intel's offering of chips for mobile devices. It recently announced a lineup of ultra-small chips for wearable devices, which are growing more popular.

Intel dominates the PC industry but it was slow to adapt its chips for low-power mobile gadgets like smartphones and tablets.

Krzanich has promised Intel's new Bay Trail mobile chip would find its way into a slew of tablets, but it is still unclear how much progress is being made and how much those mobile chips, which sell for less than Intel's latest PC chips, may affect its gross margins.

Some analysts believe the PC industry's troubles are already baked into the price of Intel's stock, which has risen about 14 percent in 2013, less than the Standard & Poor's 500's increase of 20 percent.

Intel shares trade at 12 times expected earnings, only slightly less than rival Qualcomm Inc's at 14 times earnings.

The company said its gross margin in the third quarter was 62.4 percent, and it forecast 61 percent for the fourth quarter. Analysts had expected 60.92 percent for the third quarter and 60.98 percent for the fourth quarter.

Intel posted net earnings of $2.95 billion, or 58 cents a share, compared to $2.97 billion, or 58 cents share, in the year-ago quarter. Analysts had expected earnings per share of 53 cents, according to Thomson Reuters I/B/E/S.

Revenue was $13.48 billion, barely changed from $13.46 billion in the year-ago quarter. Intel forecast revenue of $13.7 billion, plus or minus $500 million for the current fourth quarter.

Analysts had expected $13.463 billion in revenue for the third quarter and $14.004 billion for the fourth quarter.

Shares of Intel were down 2.31 percent in extended trade after closing down 0.26 percent at $23.39 on Nasdaq.

© Thomson Reuters 2013