Intel profits sink in 'uncertain' climate

Chipmaker's earnings fall, but results meet Wall Street profit forecasts. The company says it is not providing a revenue outlook because of economic uncertainty.

Brooke Crothers Former CNET contributor
Brooke Crothers writes about mobile computer systems, including laptops, tablets, smartphones: how they define the computing experience and the hardware that makes them tick. He has served as an editor at large at CNET News and a contributing reporter to The New York Times' Bits and Technology sections. His interest in things small began when living in Tokyo in a very small apartment for a very long time.
Brooke Crothers
3 min read

Updated at 4:25 p.m. PST throughout, including correction to mobile processor revenue

Intel reported Thursday a 90 percent drop in net income for the fourth quarter, as the company continued to cite an "uncertain" environment.

Revenue met the expectations that Intel set last week when it issued a warning on fourth-quarter revenue. The $8.2 billion in revenue amounts to a 23 percent drop from the year-earlier period, when it reported revenue of $10.7 billion.

Profits plunged 90 percent to $234 million, or 4 cents a share, for the quarter. This is in stark contrast to the same period the previous year, when the world's largest chipmaker posted net income of $2.3 billion on earnings per share of 38 cents.

For 2008, Intel had revenue of $37.6 billion, operating income of $9 billion, net income of $5.3 billion, and earnings per share of 92 cents.

Intel said it is not providing a revenue outlook at this time because of economic uncertainty. But it has an "internal" forecast of about $7 billion in first-quarter revenue.

Intel's earnings report comes just after IDC reported Wednesday that overall PC shipments worldwide dropped 0.4 percent to 77.3 million units during the fourth quarter. There hasn't been an overall drop in shipments since the second quarter of 2001, after the last recession.

IDC also said the growth of the portable-PC market--to date, the hottest PC market--was also down by almost half in the fourth quarter, year to year.

Reflecting these conditions, chief financial officer Stacy Smith said that he saw the "supply chain" (companies that either directly or indirectly order chips from Intel) significantly cutting back in the second half of the fourth quarter and that this contraction could carry over into the first quarter.

In order to control the inventory of chips and avoid oversupply, Intel will bring utilization of factories "dramatically down" in the first quarter, Smith said.

Financial Highlights from the earnings report:

  • Fourth-quarter revenue $8.2 billion, down 19 percent sequentially
  • Gross margin 53 percent, down 6 points sequentially; expected to decline to low 40s in Q1
  • Operating income $1.5 billion, down 50 percent sequentially
  • Quarterly net income $234 million; EPS 4 cents, meeting Wall Street forecasts

Product Sales Highlights from the earnings report:

  • Mobile processor revenue fell to $2.584 billion from $2.989 billion in 2007
  • Revenue from the Atom Netbook processor was $300 million, up 50 percent
  • Total microprocessor average selling price (ASP) was flat, but up slightly if Atom is excluded
  • Processor and chipset units were lower versus third quarter

The Atom processor--used most notably in Netbooks--holds much promise but is also a source of angst for Intel. While revenue from Atom shot up, its low price dampened ASPs overall. If Atom is excluded, ASPs would have been up slightly, chief executive Paul Otellini said. Still, he expects "substantial" year-on-year growth for Atom. And the "desirability in entering that segment" expressed by competitors "validates" Intel's view that Atom is an important market, he said.

Otellini was quick to claim that there was "very little cannibalization of notebooks" from Netbooks and said cannibalization is about 10 percent. Cannibalization of its higher-end silicon is a concern for Intel because Atom doesn't deliver the same level of profits.

In 2009, despite the "economic uncertainty"--a term used more than a few times during the earnings conference call--Intel said it will continue to invest aggressively and move quickly to the next generation of processors. "We will not slow down introduction," Otellini said, of next-generation 32-nanometer technology. Smith added that Intel's goal is to get to 32 nanometer "as fast as we possibly can" since moving to a new generation of technology can ultimately boost profitability.

New 32-nanometer chips should appear in the second half of the year, in mobile and desktop initially, Otellini said.