Intel Reports Lackluster Q1
Online Staff -- EDN, April 20, 2006
Intel Corp. on Wednesday painted a bleak picture of its Q1 results as lower microprocessor sales led to declining net income and revenues.
Intel revenue for Q1 was $8.9 billion, down 12 percent sequentially and 5 percent year-on-year. This translated into net income of $1.3 billion, or earnings per share of 23 cents, down 45 percent sequentially and 38 percent year-on-year.
First-quarter gross margin was 55.1 percent, compared to a January expectation of 59 percent, plus or minus a couple of points. Gross margin was impacted by lower microprocessor revenue and higher inventory write-downs.
Noting the disappointing results, Intel cited lower total microprocessor units sold coupled with lower average selling price. Chipset, motherboard, flash memory units and application processor units for products such as cellular phones and PDAs were also lower sequentially, Intel said.
"We believe PC growth rates have moderated over the course of the past few quarters, leading to slower chip-level inventory reductions at our customers and affecting our revenue in the first half of the year," said Intel President and CEO Paul Otellini, in a statement.
"We made excellent operational progress during the quarter, shipping millions of 65nm dual-core processors, and saw strong market acceptance of the Centrino Duo mobile platform as well as the Viiv platform for the digital home," he continued. "We plan to launch new processors based on the Intel Core microarchitecture in the third quarter, giving Intel performance leadership across the server, desktop and mobile segments and setting the stage for a strong second half."
Intel expects Q2 revenue between $8 billion and $8.6 billion, below normal seasonal patterns, and behind Wall Street's expectations. The company believes PC growth rates have moderated in recent quarters, resulting in above-normal customer inventory levels that are limiting demand in the short term.
The company guided full-year revenue to be approximately 3 percent lower than prior-year revenue of $38.8 billion. Financial analysts at Wall Street firm Goldman Sachs Inc. noted that even down just 3 percent, given Q1's results and guidance for Q2, the full-year guidance implies quarterly sales gains of 15 percent sequentially in both Q3 and Q4 of this year. A normal seasonal increase would be about 7 percent to 8 percent in Q3, and 9 percent to 10 percent in Q4.
"Management’s full-year 2006 revenue guidance is based on the company’s expectation that: a) PC units will growth about 7percent to 8 percent year over year, vs. earlier guidance for PC units to grow about 11 percent (we would note that our PC team expects PC unit growth of about 11 percent year over year in 2006), and b) Intel will gain back some of the market share it has lost to AMD over the last several quarters," Jim Covello, a Goldman Sachs analyst, stated in a research note.
"While we believe Intel’s new products coming to market in Q3’06 based on its new core microarchitecture (Woodcrest in servers, Conroe in desktops, and Merom in notebooks) will help Intel gain back lost market share, we believe the company should not have set such a high bar for significant market share gains immediately beginning in Q3," Covello said. "Further, full-year operating expense and gross margin guidance also call for significant expense improvements as the year progresses.
"We therefore believe that the company’s aggressive full-year revenue and expense guidance create the possibility of yet another miss, after Intel has already disappointed the Street for the last several quarters," he concluded.
