RealTime IT News

Seasonal Dip Not So Severe For Intel

Coming off the Christmas season, Intel reported respectable sales and income and expects a much better year ahead. Intel reported earnings of $1.61 billion, or 27 cents per share, for the first quarter of 2007 after the market closed on Tuesday.

That's an 18 percent improvement over net income of $1.36 billion, or 23 cents per share, for Q1 2006. Much of that bump in the bottom line came from a reversal of $300 million of previously accrued taxes that were paid back to the company.

Revenues for the quarter were $8.85 billion, down slightly from last year's $8.94 billion. Analysts surveyed by Thomson Financial were expecting Intel to earn, on average, 22 cents per share on nearly $9 billion in revenue. Sales were down across the board in all of Intel's  divisions, which is a seasonal occurrence for the company coming off the fourth quarter.

Average selling prices (ASPs) were also down in desktop and server processors. What helped the company was improved manufacturing technology, which reduced costs. Along with 11,000 job cuts, the company reduced expenses by $500 million over the previous year, which helped the bottom line.

"We are pleased with our operating performance, with the lower unit costs, higher margins, good inventory management and lower spending expenses, which are ahead of projections," said CEO Paul Otellini on a conference call with analysts.

The gross margin in Q1 07 was 50.1 percent, higher than 49.6 percent in Q4 '06 as lower microprocessor unit costs and the sale of inventory more than offset the start-up cost of shifting to 45nm manufacturing.

Chief financial officer Andy Bryant told the conference call that all of Intel's expense in shifting to 45nm manufacturing would be in the first half of this year, so beginning in Q3 there will be a material impact on the bottom line, to the plus side.

For the upcoming quarter, Intel expects revenue to be between $8.2 billion and $8.8 billion with a gross margin of 48 percent, plus or minus a couple of points. Spending will be between $2.6 billion and $2.7 billion plus a $60 million restructuring charge.

For the year, the company is expecting a gross margin of 51 percent, plus or minus a few points. R&D will be $5.6 billion, higher than the previous expectation of approximately $5.4 billion. Operating expenses will be approximately $5.1 billion, lower than the previous expectation of approximately $5.3 billion. Bryant said he expects to see improvements in the second half of the year as new processor shipments begin.

Jim McGregor, semiconductor analyst for In-Stat, said Intel did fairly well this quarter, all things considered. "Given the pricing pressures, they did pretty well. They started this price war in April of last year, and it's another data point to show they gained ground and have their feet underneath them after launching all these products last year," he told internetnews.com.

However, the 50 percent margins are not a good sign. In the good old days, when AMD was an also-ran, Intel enjoyed margins of 59-60 percent. Those days are gone. "They are saying 51 percent this year, but their competitor is going to have more products out. That's going to be a critical item to watch, to see how aggressive this becomes," said McGregor.

Asked about AMD  Otellini said, "I'm assuming we'll be able to maintain our competitive lead in all segments, all year."

The Intel CEO was also asked where Vista fits in to the company's projections. Otellini responded that he felt most firms were testing it out now and he expected Vista deployment will begin to take place in earnest in the fourth quarter, "When the service pack for Vista comes out around October/November."

In an email response to internetnews.com Microsoft officials said no official release date for a Vista Service Pack has been set.