Intel moved yesterday to bolster its flagging profits, unveiling two new microchips aimed at the the highest and the lowest ends of the market. But while the company says this will drive its earnings back to growth in the second half of this year, some industry observers believe Intel needs to do more.
Intel, which employs 3,500 people at its European headquarters in Leixlip, said on Tuesday night it had made net profits of $1.3 billion (£950 million) for the first three months of this year, down from the $2 billion in the same period in 1997. The results were in line with a profits warning issued by the company in March, but Intel added that its second quarter revenues and profits would be flat, and that it would reduce its worldwide workforce by 3,000, "mainly through attrition".
A spokesman for Intel stressed again yesterday that the company would continue to hire in Ireland, and that the new wafer fabrication plant would open on schedule next month. While overall numbers would rise, it was possible the Irish operation would contribute to the cutbacks by not replacing some workers who left the company.
Predicting that its profits would grow in the second half of the year, Intel yesterday unveiled its Celeron chip, aimed at the home personal computer market. The company has admitted it was slow to see the demand for low-cost computers - typically under $1,000 in the United States - and hopes the Celeron will recoup ground lost to rival chip-makers.
Intel is also introducing a new, faster Pentium chip for the high end of the market. Company managers say they expect a take-off in sales of digital video disk drives (DVD) either this Christmas or next.
But some industry observers see Intel's move as too little, too late. "Celeron is overpriced and underpowered, and it will hurt customers, the industry and, ultimately, Intel," said Mr Mark Van Name and Mr Bill Catchings, two PC Week magazine columnists in an open letter to Intel. These and other commentators say the Celeron chips will be significantly slower than Pentiums, because they lack a feature known as a "Level 2" cache.
Intel, however, rejects these criticisms. The firm's corporate vice president and general manager of the microprocessor division, Mr Michael Fister, said in an interview with Reuters that the new microprocessor would prove ideal for household use.
In the statement accompanying the diminishing revenues and profits figures, the company's chief executive, Dr Andy Grove, said the PC industry had "gotten ahead of itself", building more computers than users wanted. In a conference call yesterday, Intel's chief financial officer, Mr Andy Bryant stuck closely to this line, suggesting that the company would now "take a breath" and build its business back up.
Some industry analysts agreed with this analysis, arguing that consumer demand would rise steadily as the year wore on.
Others suggested the price of microchips would be forced down permanently, eroding Intel's traditionally huge profits.
Meanwhile, Intel in Ireland said its Fab 14 plant would open on time next month, and that it still planned to bring its workforce to 4,000 by the end of next year. The move will bring Intel's investment in Ireland to $2.4 billion (£1.7 billion).
