Intel on Tuesday reported third-quarter revenue about in line with lowered expectations and told Wall Street to expect about the same in the fourth quarter. After markets closed Tuesday, the chipmaker reported third-quarter earnings of $655m (£458m), or 10 cents a share, excluding special charges. Revenue came in at $6.5bn. Intel was expected to log a third-quarter profit of 10 cents a share on revenue of $6.4bn, according to analysts polled by First Call. Analysts cut their estimates in recent days. First Call last week listed a consensus forecast of 12 cents a share for Intel's third quarter. Earnings were down 77 percent from $2.89bn, or 43 cents a share, from the year-ago quarter. Revenue was down 25 percent from the $8.7bn it reported in the third quarter of 2000 but up 3 percent from the $6.3bn it posted during the second quarter of 2001. Intel shares were trading at $25.50 in after-hours activity late Tuesday on the Island ECN. Intel rose 58 cents, or 2.3 percent, to $24.96 in regular trading ahead of the earnings report. Although earnings per share fell 17 percent from the second quarter, shipments of processors, flash memory, chipsets, motherboards, Ethernet products, networking components and network processors increased in the third quarter, Intel said. However, processor prices fell as Intel continued an ongoing price war with its chief rival in PC processors, AMD. If Intel is correct, the fourth quarter will look much like the third. The company predicted fourth-quarter sales would range between $6.2bn and $6.8bn, the same range it predicted for the third quarter. Gross margin will be about 47 percent in the fourth quarter, compared with 46 percent in the third, Intel said. And the company sees expenses ranging between $2bn and $2.1bn, almost the same as the third quarter's $2bn. Overall, third-quarter semiconductor shipments and revenue were up for computer products, such as Pentium 4 processors, up slightly for flash memory used in consumer electronics devices and weak for communications products. Intel's third-quarter workhorse was the Pentium 4. Paul Otellini, executive vice president and general manager of the Intel Architecture Group, called the Pentium 4 "very successful" in a conference call with analysts following the earnings announcement. Otellini said positive customer response to the Pentium 4 helped Intel to gain "a couple of points" of market share. Mercury Research's second-quarter market share numbers show Intel with 76.7 percent of the market and rival AMD with 22.2 percent. The biggest sales gains came among chips sold to distributors rather than those going directly to PC makers. "The major sales story (for the second quarter) was our distribution channel in all parts of the world," Otellini said. Intel shipped 25 percent more processors there than in the second quarter, one quarter of which were Pentium 4s. Overall, Pentium 4 shipments were four times greater in the third quarter than the second, Otellini said, making it Intel's main PC processor faster than anticipated. "The Pentium 4 crossed over Pentium III units two weeks ago," he said. "This was enabled by the...acceptance (of the chip) and the fast ramp of the 845 chipset," which allows the Pentium 4 to work with standard SDRAM memory. "We are planning to ship three times the volume of 845 in (the fourth quarter) and double our P4 production to meet all demand," Otellini added. He also downplayed reports of shortages of certain components, such as the 845. Otellini said Intel is on target to hit its original 2001 Pentium 4 sales goals. Though Intel never made the number public, many analysts have said Intel looked to ship as many as 18 to 20 million Pentium 4s this year. Meanwhile, the company is transitioning rapidly away from Pentium III on the desktop, as has been its plan, although Pentium III-M mobile chips for notebook PCs will be offered for at least another year. Meanwhile, Otellini said Intel's next generation Pentium 4, code-named Northwood, will be available in volume late in the fourth quarter. Intel also will launch the long-expected version of its 845 chipset for faster DDR memory at the same time. Responding to uncertainty about the chip's launch, Otellini said, "We launch...when the products are ready and the customers are ready." The third quarter "was as expected", said Dan Scovel, and analyst with Needham & Company. "True to form, Intel pretty much met expectations. Though there was some...weakness they were able to offset with some expense savings." Scovel found the low end of Intel's revenue outlook for the fourth quarter a little troubling, however. The $6.2bn to $6.8bn range presents the possibility of a decline of as much as 5 percent from the third quarter. "The outlook, I would say, is even a little softer than we expected for" the fourth quarter, Scovel said. "I think this really speaks to the weakness of the PC market." Intel predicted last quarter that seasonal trends would lead to increased processor sales in the second half vs. the first half. The company predicted revenue ranging from $6.2 to $6.8bn. Later, the company issued a somewhat optimistic mid-quarter earnings update. The update said third-quarter sales would hit slightly below the midpoint of its earlier expectations, about $6.4bn. But the update also stressed that revenue would hinge on September's sales. That was 6 September, just five days before the attacks on the World Trade Center and the Pentagon. The attacks have curbed spending throughout the economy. They may be particularly damaging to Intel because the bulk of third-quarter sales occur in the last two weeks of September, according to analysts and Intel Chief Financial Officer Andy Bryant. Historically, September and October are the two biggest months of the year for Intel, thanks to back-to-school and holiday orders. It was also September of last year that marked the turning point for the PC market. Sales began a slide they have yet to recover from and aren't expected to do so until the second half of 2002. Intel was one of the first to issue an earnings warning. While the effects of the prolonged PC slump were predictable, aftershocks from the 11 September attacks were more of an open question. Dell Computer, one of Intel's largest customers, said it rebounded quickly after the attacks. But several of its competitors, including Compaq Computer and Gateway, did not, issuing earnings warnings of their own. Though certain areas, such as US retail sales, were slow after the attacks, the month was strong overall, Otellini said. "The month of September was, as I indicated, strong in many geographies, and there was really no discernable difference either before or after (11 September)," Otellini said. Despite the relatively bleak fourth-quarter outlook, most analysts are predicting a small sequential increase over the third quarter. Analysts polled by First Call predict fourth-quarter earnings will climb slightly to 11 cents a share, on revenues of $6.8bn. The US economy and the confidence of its consumers will have as much to do with Intel's success in the fourth quarter as the company's own ability to produce chips. While Intel has brought its Pentium 4 into the market successfully, analysts say the bigger issue is demand. "If there's not enough people who want to buy PCs in the fourth quarter, things could slow down" more, said Mercury Research analyst Dean McCarron. "I recognise there's a lot of older, slower boxes out there. But the motivation to upgrade isn't clear." Analysts originally expected the 25 October introduction of Windows XP to boost PC sales as consumers looked for more computing horsepower to run Microsoft's new operating system. But those hopes have faded in recent weeks, with some analysts predicting limited initial interest in the software. Aside from convincing PC users to upgrade, one of Intel's biggest fourth-quarter difficulties will be its continued price war with rival AMD. Intel has cut prices aggressively in an attempt to move Pentium 4 into the mainstream PC market. But that price war hasn't only hurt AMD. Intel's average selling prices for processors have fallen substantially as well. Intel likely will cut prices again later this month, analysts say. Bryant said during the conference call that Intel does not predict ASPs, but, "clearly, with margins not doing much, you aren't going to see a whole lot of excitement there," he said. See Chips Central for the latest headlines on processors and semiconductors. See the Business News Section for full coverage. Have your say instantly, and see what others have said. Click on the TalkBack button and go to the Chips Central forum Let the editors know what you think in the Mailroom. And read other letters.