Intel marks strongest Q1 to Q2 growth since 1988, expects continued growth in Q3
Intel reports that in anticipation of a seasonally up second half, the electronics supply chain has began refilling inventory positions that had been depleted over the past two quarters.
By Suzanne Deffree, Managing Editor, News -- EDN, July 15, 2009
"Impressive" is how many financial analysts this morning are describing Intel Corp's Q2 report, released Tuesday afternoon.
Revenue of $8 billion for the June quarter exceeded Wall Street estimates and showed sequential growth of $879 million. As compared to Q2 2008, sales were down $1.4 billion. On an annual comparison basis, Intel's revenue declines are shrinking, as the company's Q1 sales were down 26% year-over-year.
Company President and CEO Paul Otellini was positive on the sequential comparison, saying in a prepared statement that “Intel’s second-quarter results reflect improving conditions in the PC market segment with our strongest first- to second-quarter growth since 1988 and a clear expectation for a seasonally stronger second half."
Otellini expanded on that statement during Intel's quarterly call with analysts. "Our second quarter results were clearly better than we expected, with demand strengthening throughout the quarter," he said. "While the global economic environment is still recovering, customers have signaled increased confidence for a seasonal second half with their ordering patterns. I believe that this reflects how critical personal and enterprise computing have become to the world."
Otellini said consumer purchases encouraged a "strong rebound" in mobile MPU shipments. "Enterprise PC volumes remained weak but server processor volumes were better than expected, driven by a strong ramp of our Nehalem-based products," he said on the call.
The CEO further noted that Intel is seeing "significant interest" in its new products ranging from Nehalem-based Xeon processors, to its Atom line, to core i7 on the desktop.
Geographically, Otellini said the MPU kingpin saw Q2 strength in Asia/Pacific, "particularly China, where the stimulus program continues to generate meaningful growth in their PC market." Otellini also noted that the United States had a "strong quarter," while Europe’s recovery has fallen behind the two regions.
Also included in Intel's Q2 results was the impact of the recent European Commission record $1.45 billion fine, which forced Q2 loss. On a GAAP-basis, Intel reported an operating loss of $12 million, down $659 million from Q1 and down $2.3 billion from Q2 2008; a net loss of $398 million, down $1 billion from Q1 and down $2 billion from Q2 2008; and a loss per share of 7 cents, down 18 cents from Q1 and down 35 cents from Q2 2008.
"Excluding the impact of the fine, operating profit was $1.4 billion, up 122% from the first quarter and net income was $1 billion, up 67% from the first quarter," CFO Stacy Smith said on the call. EPS (earnings per share) were 18 cents sans the fine's impact.
Intel noted that inventories decreased by $240 million in Q2. According to Smith, that brings inventory down by more than $900 million total in the last two quarters.
"In anticipation of a seasonally up second half, the supply chain began refilling inventory positions that had been depleted over the past two quarters," she said. "As a result, we experienced better-than-expected demand for microprocessors and chipsets."
Intel's Atom MPU and chipset growth was especially noteworthy, climbing 65% sequentially to $362 million in Q2 revenue. However, not all industry watchers are wholeheartedly cheering that point.
"While we commend Intel management for its stellar process, product, and business execution through this downcycle, we believe the Atom processor will drive negative cannibalization impacts in coming years," Craig Berger, a semiconductor market analyst at FBR Capital Markets, said in a research note this morning.
Berger, as well as other industry watchers, have cautioned on Atom before, noting its lower ASPs (average selling prices) as compared to higher price points for CPUs used in notebooks and desktops compared to Atom's found home in netbooks and nettops.
Still, FBR expressed an overall positive attitude toward Intel's Q2 results and Q3 outlook, which called for revenue of $8.5 billion, plus or minus $400 million.
"Intel reported very strong Q2 results and Q3 guidance, both of which handily beat even the most optimistic buy-side investor expectations," Berger said in the research note titled in part "Big Upside Sets the Stage for Next Leg of Chip Rally."
"While the SOX [semiconductor stock index] has been in a digestion-driven trading range for several months now, we think robust Q3 guidance from a host of broad based (ONNN, FCS [ON Semiconductor, Fairchild semiconductor]) and bellwether (BRCM, MRVL, QCOM [Broadcom, Marvell, Qualcomm) chip firms means that the SOX can break out of its trading range and head toward or above 300. PC-related chip stocks including AMD, NVDA [Nvidia], MRVL, and LSI could see relative strength on the back of Intel's robust commentary," Berger said.
Indeed, as FBR suggested, Intel is receiving credit from some Wall Street watchers as encouraging a rally today with its strong Q2 results. The company's stock, INTC, was up 7.07% as of 12:45pm eastern today climbing to $18.02 from its Tuesday close of $16.83. AMD, Intel's closest rival, saw its stock up 9.58% around the same time, trading at $3.89. INTC closed at $18.05 for the day; AMD closed at $3.86.
