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Intel Downgrades Forecast After Another Weak Quarter

MANHASSET, N.Y. — Struggling Intel Corp. lowered its 2006 forecast after posting sales and earnings for the second quarter that declined both sequentially and from the year-ago quarter.

Intel (Santa Clara, Calif.) reported second-quarter sales of $8 billion, operating income of $1.1 billion, net income of $885 million and earnings per share of 15 cents. Sales declined 10 percent from the previous quarter and 13 percent from a year ago, while net income fell 35 percent from the previous quarter and 57 percent from a year ago.

Excluding the effects of share-based compensation, the company posted operating income of $1.4 billion, net income of $1.1 billion and EPS of 19 cents.
Intel's second-quarter gross margin of 52.1 percent, versus April guidance of 49 percent, which the company attributed to better than expected microprocessor and chipset unit costs and inventory valuation. However, the company felt the brunt of lower average selling prices as it engaged in a price war with arch-rival AMD.

Sales fell sequentially in all of Intel's geographic regions, led by Europe where sales dipped 19 percent. Asia-Pacific sales showed the smallest decline at 6 percent.

Intel downgraded its second-half forecast. For 2006, Intel now expects capital spending to top out at $6.2 billion, down from $6.6 billion previously, and gross margin to be 51 percent, down from 53 percent previously. R&D expenses are projected at $6 billion, down from $6.1 billion previously.

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