Intel Q4 profit plummets, no Q1 sales outlook given, continues investing
Atom remains a bright spot and Intel says it is on track for 32-nm process technology in the second half of 2009, but the beating Intel's numbers took in Q4 2008 will likely continue into Q1.
By Suzanne Deffree, Managing Editor, News -- EDN, January 16, 2009
Intel Corp Thursday afternoon reported on a Q4 with sales down compared to Q3, marking only the second time in the last 20 years that such a decline has occurred.
With demand hindered by the troubled economy, Intel recorded sales of $8.2 billion for the December quarter of 2008, in line with its recently revised Q4 forecast calling for sales to be down 20% sequentially and 23% year over year.
Q4 2008 joined Q4 2001 in declining revenue on a sequential basis. In 2001, Q4 sales dipped 1% on the prior quarter.
"The pace of the revenue decline in the quarter [Q4 2008] was dramatic and resulted from reduced demand and inventory contraction across the supply chain," Paul Otellini, Intel's president and CEO, said on the company's call with analysts after market close Thursday. "While inventories in total have declined, we are assuming further reduction in Q1."
The $8.2 billion in sales were accompanied by operating income of $1.5 billion, net income of $234 million, and EPS (earnings per share) of $0.04. Operating income was down 50% sequentially and 49% year over year. Net income, damaged by a $1.1 billion loss on equity investments related to Intel's interest in Clearwire Corp, was down 88% sequentially and 90% year over year. EPS was down 89% sequentially, as well as year over year. Q4 gross margin of 53.1% was lower than 58.9% in Q3.
Intel reported that revenue of microprocessors, excluding its Atom, was significantly below seasonal pattern, but ASPs (average selling prices) were up. "Fourth quarter revenue for Atom-based microprocessor and associated chipsets was $300 million, up 50% from the third quarter," Intel CFO Stacy Smith said on the call. "Including Atom microprocessor revenue, overall microprocessor ASPs were flat on the third quarter."
Looking back at the quarter, Otellini said Intel was focused on "efficiencies" and has "built that mindset" into its daily operations. Indeed, the company said it removed more than $800 million of cost in 2008 under its broad restructuring program launched in 2006.
"We divested a number of non-strategic businesses and spun out others, such as our NOR flash operations," Otellini said. "We saw the scale out of our 45-nm manufacturing process, and the design completion of our next-generation 32-nm process technology. WiMax entered commercial deployment and holds great promise of becoming a ubiquitous mobile broadband technology."
For full-year 2008, Intel posted revenue of $37.6 billion, operating income of $9 billion, net income of $5.3 billion, and EPS of $0.92. Compared to 2007, revenue was down 2%, operating income was up 9%, net income was down 24%, and EPS was down 22%.
According to Otellini (pictured), Intel is on track for introducing 32-nm process technology in the second half of 2009. "We will not slow down this introduction," he said. "We believe that the shift to 32 nanometers will increase our performance lead, lower our product costs, and usher in a new era of high volume system-on-chip products."
Smith did not provide a Q1 revenue outlook. "In light of the uncertainty in the current environment, rather than provide precise ranges for typical outlook items, we will provide business drivers for some items and wider than typical ranges for others," she said. "For internal purposes, we are planning our business for first-quarter revenue to be in the vicinity of $7 billion."
Smith continued to state that gross margin is expected to decline into the low 40s in the current quarter.
Spending for R&D and MG&A in Q1 is expected to be approximately $2.5 billion, down slightly from Q4's $2.6 billion. For full-year 2009, R&D and MG&A spending is expected to be between $10.4 billion and $10.6 billion. "This is down 6% from 2008, due to targeted spending reductions, lower spending for revenue and profit-dependent items, and the standard shift between R&D and cost of sales spending as we ramp our new 32-nm process technology," Smith said.
"With the efficiencies that we have generated over the last three years and the spending reduction already achieved in the fourth quarter, we are confident that we can achieve this spending level," she said.
"For research and development, we plan to spend approximately $5.4 billion to develop innovative leadership products and advanced manufacturing process technology. Our expectation for capital spending is to be flat to slightly down from 2008. Our capital spending for 2009 is expected to primarily consist of investments in 32-nm process technology," she continued.
Intel maintained that it does not anticipate job cuts in the near future. Financial analysts, however, continue to question why Intel has not chosen to trim its manufacturing headcount if such efficiencies are in place and on lessening demand.
"Intel's 1Q revenue guidance may encompass enough bad news to not require a revision," Craig Berger, an FBR Capital Markets semiconductor industry analyst, said in a report this morning. "Intel maintains that it will not pursue headcount reductions, and thinks it will set a 1H09 [first-half 2009] fundamental trough. Nevertheless, we wonder why Intel believes a 20% decline in 2009 revenues does not necessitate even a 10% reduction in manufacturing personnel."
Berger made similar comments in last month.
Intel's stock, INTC, was up 2.73% as of 11:25am eastern today, trading at $13.65. INTC closed at $13.29.
