Intel Posts Record Quarter; Still Cutting Jobs

Intel reported an outstanding third quarter, in defiance of all the predictions of a slowdown in computer sales. The company saw record revenue of $10.1 billion, easily blowing away projections made just last quarter of between $9 billion and $9.6 billion.

Net income was equally impressive, rising to $1.9 billion, a 43 percent jump from the $1.3 billion in the third quarter of 2006. Earnings per share checked in at 31 cents, a 41 percent improvement over last year.

And yet 2,000 more people are about to get their walking papers. The company continues to reduce headcount as part of a restructuring effort initiated last year, from a high of nearly 100,000 workers. It’s down to 88,000 worldwide now and plans to settle at 86,000 by year’s end.

In the executive suite, things are changing. Andy Bryant, who has served as chief financial officer since 1994, was bumped up to chief administrative officer. His replacement is Assistant CFO Stacy Smith, a 19-year Intel veteran.

On the conference call with analysts, Intel CEO Paul Otellini was quite upbeat. “We enjoyed robust demand for our leading edge processors and chipsets. Not only was demand strong overall but it grew as the quarter progressed,” he said. The growth cut across all market segments and allowed them to hold average selling prices (ASPs) flat sequentially.

That’s a good thing, because there has been serious ASP erosion over the past few years. For Otellini, holding ASPs steady was a victory.

Another positive sign was that growth was up in vital areas, namely mobility and chipsets. Chipsets are a leading indicator of future CPU sales, Otellini pointed out. “Chipsets tend to lead microprocessors because they get put on the motherboard first,” he said. “People would not continue to buy chipsets at that rate if we see a slowdown coming or panic buying.”

Just to show how strong Intel’s business remains, Bryant said gross margin in the fourth quarter will be five points higher than the recently concluded third quarter and raised the company’s revenue forecast for the full year. The sequential growth from the second quarter to the third is more than double the average increase in this period in the last 10 years and highest quarter-to-quarter improvement in the last 10 years.

Bryant said in making quarterly assessments, it’s become more important to watch the worldwide economy and not focus on seasonal issues like Christmas. “That is now much less important than how worldwide economies are performing,” he said.

Intel’s gross operating margin was 52.4 percent, up from 46.9 percent in the second quarter thanks to higher sales volume, reduced 45nm start-up costs and lower microprocessor unit costs. However, as the company ramps up for the release of Penryn on November 12, R&D spending boosted monthly spending to $2.9 billion, up from $2.6 billion last quarter.

For the fourth quarter, Intel is projecting revenue of between $10.5 billion and $11.1 billion, with a gross margin of 57 percent, plus or minus a couple of points. Expenses will be between $2.8 billion and $3 billion.

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