The announcement yesterday that construction on Intel's new Leixlip investment would be "slowed down" and that the production of its new processor would be delayed until mid-2003 follows the company's acknowledgement last Thursday that first-quarter sales would fall sharply below Wall Street's previously lowered expectations.
Mr Chuck Molloy, Intel vice president for communications, told The Irish Times yesterday that "the current economic climate is a contributing factor" to the decision to put back the production starting date for wafer fabrication production expansion in Ireland for the second time. However, speaking from Intel's Santa Clara headquarters, he said the delay was "normal".
Intel has four factories under construction and Ireland would be the first to use the new point one micron technology, Mr Molloy said, adding that the company would not cut spending on new plants and equipment, and previous plans to spend $7.5 billion (€8.2 billion) to expand production and implement new technologies remained unchanged.
Intel's chief financial officer, Mr Andy Bryant, told analysts in a conference call last Thursday that a faltering economy had weakened demand for all of Intel's products, and sales would be 25 per cent less than they were during the fourth quarter, or about $6.5 billion, much lower than the $7.4 billion expected.
More ominously for the technology industry, Mr Bryant said he did not have any idea when business would improve. "Right now, I can't look at the worldwide or Intel economy and give you a lot of hope," he said. Mr Bryant added that the erosion in demand for chips for personal computers had spread to Intel's networking, communications and server products.
However, he emphasised that "while the current climate is grim, it has presented nothing to shake our confidence in the years ahead".
A delegation from IDA Ireland will visit Intel in Santa Clara next week, an IDA spokesman in San Jose said yesterday. He attributed the news to the general retrenchment in the technology sector. "Intel has been hit like everyone else."
Mr Sean Maloney, director of Intel's sales and marketing group, said telecom companies had cancelled large orders, reflecting a slowdown in the sale of mobile phones. He said the US slowdown was spreading overseas, with order cancellations coming from all over. "The European market has been uninspiring for some period of time. Predicting at what point there is an economic upturn and people start buying those cell phones again - your guess is as good as mine."
Intel, the world's number one chip maker, is one of the three technology giants, along with Cisco Systems and HewlettPackard, based in Silicon Valley in California. It has more than 80 per cent of the PC micro processor market, including the powerful Pentium and the lower-end Celeron.
Intel's largest customers, PC makers Compaq and Dell, each account for 13 per cent of sales, and both have been hit by declining orders. The firm has been making a big push into networking services and communications infrastructure such as Web appliances. About 55 per cent of sales are outside the US.
Many US technology analysts suggest a recovery is a long way off because of declining orders and rising inventories. "At this point, the industry appears to be staring into the abyss," said Mr Dan Scovel, a semiconductor analyst at Needham & Co. "There is a hope for recovery before the end of the year. Anything beyond that is a guess."
Intel has now reduced its sales targets for the third consecutive quarter, underlining the downturn in the US and world economy.
Costs are now being slashed at the group. Mr Bryant said the company was expanding the cost-saving programmes it announced last month. Among the budget cuts are deferred pay rises for senior management and hiring restrictions for every category of worker except critical technical and engineering jobs. The company plans to cut roughly 6 per cent of its 87,000 employees by not filling positions that are vacated.
