Intel earnings beat targets

The chipmaker reported a net profit of $1 billion, or 16 cents per share, after charges for acquisitions. Before acquisition costs, net profit was $1.1 billion. Intel's revenue for the quarter, which ended Dec. 28, was $7.2 billion, up 10 percent sequentially from the third quarter.

Analysts had expected Intel to post a per-share profit of 14 cents on revenue of $6.9 billion for the fourth quarter, according to a First Call poll.

The chipmaker said its good fortune came from increased sales of PC processors, chipsets, motherboards and flash memory. Intel saw increases during the quarter both in the average selling price of its processors used in PCs and servers and in gross margin percentage. Gross margin came to 51.6 percent, compared with 49 percent in the third quarter.

"The fourth quarter was a strong quarter for Intel, with growth in all the major areas of our businesses," Paul Otellini, Intel's president, said during a conference call to discuss the company's earnings report.

The increase in average chip prices shows the company sold a higher percentage of mobile chips, higher clock speed Pentium 4 chips and Xeon chips for servers than it did of its Celeron chip for low-priced PCs. Meanwhile, Intel's flash memory business saw increased revenue and its largest unit shipments in eight quarters, Otellini said. (Flash memory is used widely in cellular phones and PDAs to store data.)

Intel beat even its own highest expectations for the quarter. The company upped its revenue projection for the quarter slightly in December, citing somewhat stronger-than-expected sales. It boosted its prediction to between $6.8 billion and $7 billion in revenue from between $6.5 billion and $6.9 billion, its original projection made in October.

For the year, Intel earned $3.1 billion, or 46 cents per share, and had revenue of $26.8 billion. Analysts expected Intel to hit 49 cents per share with revenue of $26.5 billion, according to First Call.

While Intel ended 2002 on a positive note, the company offered a cautious outlook for the beginning of 2003. The chipmaker predicted that its first-quarter revenue will fall to between $6.5 billion and $6.7 billion. It also predicts a decline in gross margin percentage to around 50 percent.

If Intel revenue for the quarter came in at the midpoint of the predicted range, $6.6 billion, it would equal a 6 percent decline from the fourth quarter. That's in line with historical patterns for the past five years, excluding 2001--which saw an unusually high 23 percent dip, Intel executives said on the call.

The company is being somewhat cautious because the PC market recovery expected to begin during 2003 has not yet shown signs it will materialize.

"We've been positioning ourselves so that when the recovery comes we have the technology and the capacity in place," Andy Bryant, Intel's CFO, said during the conference call. "Everything's been happening the way it should. The question is when does the market return?"

Intel has seen a few bright spots in the business market, for example, but nothing to suggest a major upturn yet, Otellini said.

"There's not a clear pattern that it's returned, though we have seen a number of fairly large purchases," Otellini said. "There are some points of light out there, although nothing I'd say at this point that indicates a clear pattern."

So Intel continues to work on new its new products and on putting new manufacturing processes in place, anticipating that eventual recovery.

The chipmaker is working on a number of new processors, the first of which is its Pentium-M, formerly known as Banias. The chip, Intel's next-generation processor for notebooks, will come out in March and when bundled with a specific chip set and wireless module will be sold under the new Centrino brand. Meanwhile, Intel is testing Manitoba, a single chip that combines a processor, memory and communications subsystems for cell phones. It has also completed the design of Prescott and Dothan, future versions of its desktop and mobile chips based on a 90-nanometer manufacturing, Otellini said.

"We're ready for whatever comes at us in terms of the overall demand and capacity situation," he said.

Part of Intel's plan for 2003 is to reduce its budget for capital expenditures by about $1 billion. Next year, Intel plans to make between $3.5 billion and $3.7 billion in capital expenditures on new manufacturing plants and similar projects. In 2002, its capital expenditures totaled $4.7 billion.

The drop in spending is made possible by Intel's transition to larger, 300mm wafers. The larger wafers offer more area than the 200mm wafers used now, allowing the company to boost the number of chips it can create from each wafer.