Intel hits mark; PC business looking up

update The chip giant reports earnings largely in line with analysts' expectations, and, after a year and a half of doldrums, indicates that its PC business is turning the corner.

Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
Michael Kanellos
3 min read
update Intel reported earnings and revenue that were largely in line with analysts' expectations, and, after a year and a half of doldrums, indicated that its PC business is turning the corner.

For the first quarter, the Santa Clara, Calif.-based chip giant reported earnings of $936 million, or 14 cents a share, on revenue of $6.8 billion. Excluding acquisition-related costs, earnings came to $1 billion, or 15 cents a share. Earnings were down 1 cent per share owing to a settlement of a legal dispute with software and services company Intergraph.

A consensus of analysts expected the company to report earnings, excluding acquisition-related costs, of 15 cents a share on revenue of $6.79 billion, according to First Call.

The upside, though, lay in the details. Revenue from the Intel Architecture Group, which makes PC processors, was higher than normal, and average processor prices actually went up from last quarter because of increased Pentium 4 shipments. Gross margins continued to increase because of reduced manufacturing cost.

"Results from the Intel architecture business were a little better than seasonally typical," Andy Bryant, Intel's CFO, said on a conference call. "Revenues turned the corner and were up slightly over last year."

Unit shipments of processors, Bryant added, were flat with the fourth quarter, when usually they decline in the first quarter. On the other hand, losses in the company's communications units were larger than expected, but it's a smaller part of the overall business.

Overall, earnings were slightly down, but revenue was slightly up compared with the same period a year ago, when Intel and the rest of the industry were wallowing in one of history's biggest declines in technology purchasing. Then, the company reported net income, excluding acquisition costs, of 16 cents a share, or $1.1 billion, on revenue of $6.7 billion.

Including acquisition costs, net income came to 7 cents a share, or $485 million, in the first quarter of 2001. Acquisition costs, though, have slowed considerably.

For the second quarter, revenue will decline to between $6.4 billion and $7 billion, the company said, reflecting normal seasonal trends. Gross margins, however, are expected to rise to 53 percent, give or take a few points, for the second quarter and the year. Last year, gross margins came to only 49 percent.

Revenue should pick up in the second half, though, executives said. The Pentium 4 onslaught will continue, said Paul Otellini, Intel's president. The first Celerons based on the Pentium 4 architecture and intended for the budget market will come out this quarter, while new chipsets with integrated graphics will cut the price of standard Pentium 4 PCs.

Further price cuts will also conspire to shift the sweet spot, or average, of the market to 2GHz. Manufacturing cost reductions will also occur because of a shift to 300-millimeter wafers.

By the end of the year, Intel will manufacture 3GHz Pentium 4's in volume. "We're going to continue to grow as much market share as we can," Otellini said. "Overall, we believe we held market-segment share in the quarter."

Asia-Pacific sales also continue to grow, Otellini said. The Asia-Pacific has become Intel's largest market and grew 2 percent this quarter, primarily because of sales to China and India. U.S. sales were down 4 percent.

"We can have a seasonal (higher) second half without a rebound of the Western markets," Otellini said.