Intel Issues Murky Growth Outlook


Intel put in a strong showing for the third quarter, but due to uncertainty going forward, issued one of the widest ranges of revenue guidance in its history.

The chip giant on Tuesday said it expected revenue to be between $10.1 billion and $10.9 billion in the fourth quarter. Wall Street was expecting around $10.8 billion.

“As we look to Q4, it is hard to know what impact the financial crisis
will have on end customer demand,” CEO Paul Otellini said in a statement accompanying his company’s third-quarter earnings.

Intel reported third quarter net income of $2 billion, or 35 cents a share, compared with $1.8 billion, or 30 cents a share, in the same period last year. Revenue was $10.22 billion, up slightly from the $10.1 billion reported in the third quarter of 2007.

Analysts had expected, on average, earnings of 34 cents a share on
revenue of $10.25 billion.

However, Intel (NASDAQ: INTC) could not make many promises going forward.
So much so, it will hold a mid-quarter call to update the financial
community on whether or not it will wind up with a lump of coal in its
stocking for Christmas.

Memory is becoming a real headache for Intel. The company was hit
with a greater-than-expected charge of $265 million in the third quarter for
Numonyx, its joint-venture with ST Microelectronics to produce NOR flash
memory chips.

In Q4, Intel will take a restructuring charge of $250 million
dollars from the closure of a NAND flash memory joint venture with Micron.
Also, a Singapore memory facility is now on hold.

R&D expenses dip

Expenses will be $2.9 billion, but research and development costs will
dip by $200 million, according to Stacy Smith, chief financial officer of
the company.

“While the economic outlook has deteriorated over the past quarter, our
competitive position has improved,” he told a conference call of financial
analysts.

Otellini said Intel now has about 83,500 employees worldwide, which is about 20,000 less than it had at its peak in 2006, when he began a program of optimizing company operations. Since then, $3 billion in spending has been cut.

“We’ve made changes in operations to prepare us for a wide variety of
scenarios,” he said on the call. “Third quarter operating cash flows of $3
billion and our cash position of $12 billion, combined with little debt,
means our balance sheet is in excellent condition.”

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Shifting segments

The shift to mobility seems to be accelerating, as mobile product
revenues accounted for 45 percent of total revenues, or $4.7 billion total.
That’s an 18 percent improvement over $4.0 billion in 3Q07.

The Digital Enterprise Group, on the other hand, got a haircut last
quarter, with revenue slipping 3.4 percent to $5.3 billion. Both
microprocessor and chipset, motherboard and other revenue fell but operating
income rose 28 percent, indicating that its tightening up costs.

Revenue from Intel Atom
microprocessors and chipsets in the new netbook and nettop segments was
about $200 million. Average selling prices (ASPs) dipped slightly but if
Atom was removed, the prices were flat.

Intel also said the Americas accounted for slightly less of the total
revenue picture in the third quarter, from 21 percent in Q2 to 19 percent,
while the Asia-Pacific region rose from 51 percent in Q2 to 53 percent.

Otellini said the company expects more softness in corporate spending as
IT spending “gets rationalized in this current economic climate.” In
general, he said consumer traffic is light in the quarter but it still sees
healthy interest in notebooks and netbooks.

The mid-quarter update will come on December 4.

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