Announcement from Intel

Shares of Intel Corp., the world's biggest computer-chip maker, and Yahoo! Inc., the most-visited U.S. Web site, declined after the companies said competition is reducing earnings.

Intel shares fell as much as 5.4 percent in extended trading yesterday to $24.90 after the company's second-quarter profit margin fell short of its forecast. Yahoo's stock dropped as much as 4.5 percent to $26.28. The Internet search company forecast annual sales that trailed what analysts had expected.

Smaller rivals are charging less than Intel and Yahoo to win business. Yahoo's customers are placing ads on other companies' Web sites, aiming to get more value for their advertising dollar. At Intel, discounts by competitor Advanced Micro Devices Inc. have put pressure on prices, Chief Executive Officer Paul Otellini said yesterday. That's eaten into Intel's gross margin.

``People are disappointed with the gross margin coming in below expectations,'' said Greg Barlage, an analyst at Boston- based Baring Asset Management, which oversees $35 billion including Intel shares. ``It's definitely something to be concerned about.''

The Silicon Valley companies kicked off the second-quarter earnings season yesterday for the U.S. technology industry. International Business Machines Corp. reports today, followed by Motorola Inc., Microsoft Corp. and Google Inc. tomorrow.

Yahoo's net income declined for a sixth straight quarter, falling 2.3 percent to $164.3 million, or 11 cents a share. The Sunnyvale, California-based company forecast sales for the year of $4.89 billion to $5.19 billion. Analysts in a Bloomberg survey had expected $5.18 billion, higher than the midpoint of Yahoo's forecast.

Slowing Ad Sales

Sales of display advertisements, including banner and video ads, increased in the low- to mid-teens in the quarter, Yahoo's President Susan Decker said on a conference call. That's a slowdown from 38 percent growth in the first quarter of last year and 20 percent in the first three months of 2007, according to Jefferies & Co. analyst Youssef Squali.

``We have not continually driven innovation in the display business,'' Decker said. She was promoted to president last month in a management shakeup that brought co-founder Jerry Yang in as chief executive officer, replacing Terry Semel.

``The June quarter was more Terry than Jerry,'' said David Garrity, director of research at Dinosaur Securities Inc. in New York. ``Yang is what shareholders need.''

Social Networking

Yang and Decker face stiffening competition from social- networking companies, which charge advertisers less. Facebook Inc., a privately owned company based in Palo Alto, California, and News Corp.'s MySpace dominate sales of advertising on such sites. The market will more than double to $900 million in 2007 and reach $2.5 billion in 2011, according to research firm EMarketer Inc. in New York.

Intel, based in Santa Clara, California, said net income increased 44 percent to $1.28 billion, or 22 cents a share. Gross margin, or the percentage of sales left after production costs, was 46.9 percent, missing the midpoint of the company's forecast range.

Intel's shares had gained 30 percent this year, a sign investors were confident that the company had beaten back a challenge from Sunnyvale-based Advanced Micro. Intel's profit fell 42 percent last year after it cut prices to win back market share from its competitor.

``There was a strong run recently,'' said Pat Becker Jr., who helps manage $2.5 billion at Becker Capital Management in Portland, Oregon. The earnings report ``gives you some pause.''

source:bloomberg.com