Intel says EU fine won't lead to dividend cut

By Georgina Prodhan and Paul Sandle

LONDON (Reuters) - Intel Corp, the world's largest chipmaker, said the record 1.06 billion euro ($1.5 billion) fine imposed by EU regulators for antitrust violations would not cause it to cut investment or slash its dividend.

"There's still plenty of cash flow from operations to invest in our business, pay the fine and pay the dividend," Chief Financial Officer Stacy Smith said at an analyst event in London on Wednesday.

"As we've said in the Q1 earnings call, we are not having any conversations about cutting the dividend."

Smith showed analysts a slide indicating the company would spin off more than $10 billion in cash in 2009, flat or slightly down on 2008.

Intel addressed analyst fears that growing sales of its lower cost "Atom" processor, which is used in netbooks, would cannibalize sales of its PC chip range and put downward pressure on its former lofty 50-60 percent margins.

"There's great concern about the potential of the Atom mix because it's a lower selling price product, but it's also a lower cost product," Smith said.

"And that cost really enables us to ramp it without having an adverse effect on the overall product margin of the business."

Cannibalization of laptop computer sales by lower-priced netbooks was currently about 20 percent, "less than speculation," the company's European sales chief Christian Morales told Reuters on the fringes of the event.

Twenty percent cannibalization would mean that 20 percent of netbooks sold would otherwise have been sales of full notebooks.

Morales said netbook sales were about 16 percent of all notebook sales globally, and a little higher in western Europe. In Britain and Italy they may account for as much as a quarter of all notebook sales.

Intel has for now cornered the fast-growing market for inexpensive netbooks, made for simple functions such as surfing the Web, with its Atom processors. Many fear that that fast market growth may be at the expense of higher-priced laptops.

"We have seen some cannibalization of Celeron by Atom," Morales said, referring to Intel's processors for budget notebooks.

But he said Intel's profit margins for Atom were higher than those for the much older Celeron processors.

"The mix becomes important in understanding the overall cost," Smith said.

"We see nice growth in the high-end side of the business (its Quad processors), nice growth in the more cost-produced segment of the business and a bit of a reduction in single core, which is primarily Celeron today."