Although they look good on the surface, Intel's desktop shipment increases came mainly against rival AMD in the consumer market, Otellini admitted. The chipmaker is still counting on an upswing in business spending for a return to the spectacular profitability it has enjoyed in past years. Most analysts predict a gradual return in corporate spending in 2003, but the chipmaker isn't holding its breath. When it comes to notebook chips, for example, "The majority of the notebook market tends to be corporate purchases. It's really speculative at this point (to determine) when that will recover," Otellini said. Overall, because Intel sold a larger percentage of less-expensive desktop chips during the quarter, its average selling price declined slightly. That lower average selling price conspired with somewhat higher than expected manufacturing costs for materials, labor and underutilised factory capacity, to hold down profitability during the quarter, according to Intel executives. Intel continues to cut costs to keep profits healthy. Under a previously announced plan, the company will reduce its headcount by 4,000 by the end of the year. It will also further decrease capital expenditures during 2002, from $5bn to $4.7bn, thanks in part to its ability to re-use some chipmaking equipment. Intel will also selectively reduce capacity during the third quarter and reduce its inventory of processors as well, Bryant said. "If you look at our overall business in (the third quarter), think about what's happening in the company," Bryant said. "ASPs were down; units were up. What you're seeing is a situation... where we're just not seeing the demand pickup we'd like, and we hit the wall on cost savings." Ultimately, if sales don't improve, Intel will have to consider more drastic measures, such as the possibility of closing older factories, Bryant said. "If you believe demand will stay soft for the next 12 months and factories will remain empty, we won't make our cost targets," Bryant said. The decision to close factories is a difficult one, because it's relatively inexpensive to transition an older factory to a new manufacturing process. Intel's newest factories are the ones producing its Pentium 4 and Xeon chips. It's the older ones that might be used for communications gear or other less popular products that are underutilised, Bryant said. Shutting down those plants might save some cash, if the market stays flat. But it can "limit your ability to respond to an increase in demands", Bryant said. "You actually hand your competitor sales if you don't have the capability in place." Intel shares rose just over 9 percent, to $16.42, on Tuesday before third-quarter results were announced. Following the announcement, shares fell in after-hours trading by just over $2, or 13 percent, according to Island ECN.
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