Intel's Q2 up YoY, capex cut

By Colleen Taylor, Contributing Editor -- Electronic News, 7/18/2007

Leading chipmaker Intel Corp. made solid year-over-year gains in its Q2, proving successful the restructuring efforts undertaken by the company over the past year.

The Santa Clara, Calif.-based company Tuesday announced Q2 revenue of $8.7 billion, down 2 percent from Q1, but up 8 percent from Q2 2006.  Intel's Q2 operating income of $1.35 billion was down 19 percent sequentially, but up 26 percent year-over-year, while its net income of $1.3 billion was down 22 percent from Q1, but up 44 percent year-over-year.

The company's earnings per share (EPS) of 22 cents were down 21 percent sequentially, but up 47 percent year-over-year. Q2 gross margin was 46.9 percent.

"We're pleased that our efforts to streamline the company are delivering profit growth in excess of revenue growth," Intel President and CEO Paul Otellini said in a statement. Those efforts have included thousands of job cuts and the sale of several fabs and business entities over the past year.

Looking ahead to Q3, Intel said it expects to take in revenues of $9 million to $9.6 million and post a gross margin of 52 percent plus or minus a couple of points.

Intel also amended its outlook for the full year, upping its R&D spending to $5.7 billion from $5.6 billion and cutting its capital spending from about $5.5 billion to $4.9 billion on "manufacturing efficiencies." The move does not mark the first time Intel has lowered its capex in recent months; in fact, the company whittled down its capital spending estimates during every quarter of 2006.  Intel ended up spending a total of $5.8 billion on capital expenditures for 2006.

Intel is not alone in looking to spend modestly in 2007. Market research firm IC Insights has projected that capital expenditures from the entire chip industry will grow just 1 percent over the year, a stark contrast with the 18 percent boost in spending the industry made in 2006.

The capex cuts have been welcomed by investment firm Lehman Brothers. In a research note sent this morning, Lehman said that it was "encouraged" by Intel's capex cut as it "reduces the risk of overcapacity" in the chip market.

But despite Lehman's enthusiasm for what it called a "broadly solid" Q2 report from Intel, Wall Street has backed off from the company since the posting of its Q2 results after market's close Tuesday. Intel's stock opened at $24.95 a share this morning, down 5.2 percent from its closing price Tuesday afternoon of $26.32.

The market's response was not unexpected, however. Lehman acknowledged in its note today that Intel's shares "may be softer near term," but added that it expects improving margins in the second half of the year.