Intel Posts Q3 Rev Boost, But Cuts Capex

By Colleen Taylor -- Electronic News, 10/18/2006

Despite gains in revenue for Q3, Intel Corp. announced Tuesday that it will cut its capex for the year.

Q3 revenue of $8.7 billion was up 9 percent from Q2 but down 12 percent from Q3 2005. The chipmaker's net income climbed 47 percent from Q2 to $1.3 billion, 35 percent lower than its net income in Q3 2005.

Operating results included a gain of approximately $100 million from the sale of a portion of an investment in Micron Technology, gains from divestitures of approximately $130 million and a restructuring charge of $98 million, the company said.

"We're pleased with the results of Q3, with record mobile and server processor shipments, strong manufacturing execution, industry acclaim for our new products, and quad-core processors now extending our leadership this quarter," Intel's President and CEO Paul Otellini said in a statement.

It has been a rough few months for Intel, as some Wall Street analysts have made no secret of favoring the company's rival, Advanced Micro Devices. Intel has been undergoing a massive restructuring  that calls for thousands of worker layoffs over the next year.

Q3 sequential revenue was above normal seasonal patterns in the Americas, EMEA and Japan regions following a lower-than-seasonal second quarter for the company, Intel said. Microprocessor unit sales were higher than seasonally normal off a low Q2 base, the company added.

In efforts to further control costs, Intel also announced the reduction of capex by $400 million to $5.8 billion in 2006. Investment firm Lehman Brothers said in research note after the bell yesterday that Intel had initially announced a $6.9 billion capex outlay for 2006. Intel had spent $5.8 billion in capex in 2005. The reduction in capex will also reduce the depreciation and thus benefit margins.

FBR Research noted that Intel has lowered its capex forecast for 2006 every quarter this year.

"Given such step reductions we believe there is minimal impact for equipment bookings in the second half of 2006," said Medhi Hosseini, an analyst with FBR Research in a report issued after Intel's earnings report.

Lehman Brothers said it viewed Intel's ongoing headcount reduction and reduction in capex as "a positive" and believes that it will help improve margins and maintain costs.

Looking ahead, Intel said it expects to post Q4 revenues of $9.1 billion to $9.7 billion.