RealTime IT News

Intel Indicates the Worst Is Over - Maybe

The tech industry had been looking to Intel, the world's largest chipmaker, for a sign that the worst of the downturn may be past.

They aren't likely to be disappointed. Intel (NASDAQ: INTC) today reported first quarter net income of $647 million and earnings per share (EPS) of 11 cents on revenue of $7.1 billion. That revenue was slightly above the $7 billion in unofficial estimates, since the company gave no guidance after its disastrous fourth quarter in January.

Of course, those numbers are still down a healthy amount when compared to other quarters. Q1 2009 revenue was off 13 percent compared to Q4 2008 and 26 percent compared to Q1 2008. The net income of $647 million was a 176 percent improvement over Q4 but a 55 percent plunge from Q1 2008.

Even more encouraging, Intel's president and CEO, Paul Otellini seems finally ready to declare a bottom to the plunge that the industry took in the fourth quarter of 2008.

"We believe PC sales bottomed out during the first quarter and that the industry is returning to normal seasonal patterns," he said in a statement.

Later, on a conference call with analysts, he added "The first quarter results reflect the depth of the efficiency work we've been engaged in for the last three years. We've adjusted quickly to a new environment, where demand is difficult to predict and lead times have contracted."

To deal with this, Intel reduced inventory by 19 percent, or $700 million, as inventory slowly bled out to the channel and OEM partners. Of course, Intel paid a price for this. Its gross margin was way down, just 45.6 percent instead of the 53.1 percent in the fourth quarter of 2008 and 53.8 percent in the first quarter of 2008.

Margin took a hit because Intel idled or underutilized its fabrication plants. Fabs are to Intel what jets are to an airline; they only make money when they are in use. When they aren't in use, they just drain money.

Microprocessor units were lower versus the fourth quarter, that's a typical seasonal pattern for Intel, although the fourth quarter of 2008 was off by 25 percent, when it should have been up. The good news is average selling prices (ASPs) were flat. ASPs had been on a downward slope for some time.

While netbooks have been the hot market and were believed to be the one bright spot in the market, revenue from the Atom microprocessors and chipsets that drive them was $219 million, down 27 percent sequentially.

Next page: The worst is behind Intel, at least on one level