It’s not often that a $2.3 billion profit is badly received, but these days investors couldn’t get more jittery if they drank a triple espresso.
That’s why Intel’s fourth quarter numbers, at least initially, were considered a disappointment.
An awful lot of companies would kill for Intel’s “disappointing” quarter. Revenue was $10.7 billion, up 10.5 percent from the same quarter last year and up 6 percent over Q3 2007. Gross margins checked in at 58 percent, up 8.5 points year-over-year.
Operating income was $3 billion, up 105 percent year-over-year and net income was $2.3 billion, a 51 percent increase over the prior year for 38 cents per share.
So why was it a letdown? Because Intel expected to do even better. Last October it projected revenue of between $10.5 billion and $11.1 billion, with a gross margin of approximately 57 percent, plus or minus a couple of points.
This was the first conference call in more than a decade without Andy Bryant, who was promoted to Chief Administrative Officer. Intel’s new CFO is former Assistant CFO Stacy Smith, who was joined by CEO Paul Otellini.
Both laid the blame for the softness in sales to weakness in the flash markets, for both NAND
“The flash business had a challenging quarter,” said Otellini. “NOR units declined while NAND was sharply higher. The NAND competitive environment was worse than anticipated, causing ASPs [average selling prices] to decline from the third quarter.”
The rest of Intel’s business was good. Otellini said the server business had record numbers with double-digit growth in Q4 and that quad-core desktop sales were up 40 percent from the third quarter. Smith added that all geographies were up, particularly Europe.
Intel saw an increase in its gross margin due to declining costs of manufacturing 45nm CPUs, but Smith warned that beginning this year, the company will start to rev up its 32nm manufacturing, which will cause a slight bump in research and development costs.
Intel did improve its efficiency in 2007, though, cutting costs by $500 million more than planned. It had hoped to reduce expenses by $2 billion; instead it cut them by $2.5 billion.
With so many concerns about the economy, economic conditions inevitably became a part of the call. Smith had earlier told Reuters that Intel saw no signs of a recession, while on the call he said it was “right to be a little cautious as we go into the year.”
He added that there has been nothing unusual in terms of cancellations or a spike in inventory. If anything, Intel’s inventory is a little lower than he would like and expects the company to rebuild that a little this year.
For the first quarter of 2008, Intel projected revenues of between $9.4 billion and $10 billion with a gross margin of 56 percent, plus or minus a couple of points. Spending will be between $2.8 billion and $2.9 billion with $1.1 billion in depreciation.
Otellini concluded the call by pointing out this is Intel’s 40th anniversary as a company and that it had big expectations for the year, including the launch of Nehalem at the end of the year. Intel will host an analyst conference at its Santa Clara, Calif. headquarters in March.