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Mobility boosts Intel Q3, Wall Street sighs with relief
CEO Paul Otellini says the "Atom family is off to a very good start" as Intel's mobility group chips in more than 45% of the MPU leader's total $10.2 billion Q3 revenue. Although Intel has reduced its capital forecast for the year, the company cautions that it is not reducing ramp rate on 45 nm and is not pushing out 32-nm work.
By Suzanne Deffree, Managing Editor, News -- Electronic News, 10/15/2008
Encouraging a sigh of relief from Wall Street, Intel Corp Tuesday afternoon release Q3 numbers that showed on target profitability and revenue and provided a cautious, yet optimistic, tone for Q4.
"In Q3, we shipped an all-time record number of microprocessors, driven by strength in mobile," Paul Otellini, Intel's president and CEO, said on the company's quarterly call with analysts. "The Atom family is off to a very good start, with Atom microprocessor and related chipset revenues approximately $200 million this quarter. Total microprocessor ASP was lower than Q2 but was approximately flat without Atom, reflecting strength in the core business."
Intel's mobility group accounted for $4.7 billion in Q3 revenue, up 23% from Q2 and making up more than 45% of total revenue. Total Q3 revenue at the MPU leader was $10.2 billion, up 1% as compared to Q3 2007 and up 8% as compared to Q2. Operating income was $3.1 billion, up 44% year over year and up 37% quarter over quarter. September quarter EPS (earnings per share) were $0.35, up 17% versus Q3 2007 and up 25% on a sequential basis. Intel's gross margin of 58.9% was up from 55.4% in Q2, primarily on lower MPU unit costs and higher MPU revenue, the company said.
“Intel delivered the best third-quarter revenue in its history. We were solidly profitable, with operating income of over $3 billion, reflecting strong across-the-board execution and best-of-class products,” Otellini said, perhaps taking a knock at Intel's closest rival, AMD, which has missed profitability for several quarters now.
Otellini continued to note that Intel saw some softness in September in the corporate segment while consumer was more seasonal.
"As we head into Q4, we see some mixed signs," he said. "We expect the corporate segment to continue to show some softness as IT spending gets rationalized in this macro environment."
Otellini described inventories as in "reasonable shape," noting that Taiwan and channel customers are cutting back but "some OEMs building a bit," helping to level the field.
"For Q3, we didn’t really see a fall-off on demand. We sort of did as we said we would do and the principal difference from the midpoint is NAND, where we just didn’t ship as much product," the CEO said.
Overall, the company is cautious but optimistic as it moves into the final quarter of 2008.
"While our results in the third quarter were strong, and we have high confidence in the fundamentals of our business, the financial crisis is creating a high degree of uncertainty around fourth quarter demand," Otellini said. "Therefore we believe there is a broader than normal range of possible outcomes for fourth quarter revenue, ranging from $10.1 billion to $10.9 billion. The low-end of this range is slightly down from the third quarter, while the high-end of this range is at the lower end of seasonal patterns."
Intel has further trimmed R&D spending and capex, however, does not expect capacity to slip on the actions. Spending for R&D and MG&A for the full year is now forecasted at $11.5 billion, down from Intel's prior forecast of $11.7 billion. The company said the change was primarily due to revenue and profit dependent expenses and foreign exchange rate changes. Intel's capital expenditures has been reduced by $200 million to $5 billion, plus or minus $100 million.
"You did see us reduce the capital forecast for the year. I wouldn’t want you to take from that that we are reducing ramp rate in the quarter of 45-nanometer because we are not, nor are we pushing out 32-nanometer," Stacy Smith, Intel's CFO, said on the call. "What we are doing is taking tactical actions to some of the non-capacity related capital and you are seeing a continued focus on efficiency in the factory network. That’s pretty consistent with where we’ve been the last six quarters, where we just find opportunities to reduce our capital spend while we stay focused on ramping the new process technology."
Even with the cuts and lackluster Q4 estimates, Wall Street sent Intel's stock, INTC, up in morning trading. As of 10:24am eastern, the stock was trading at $16.30, a 2.3% increase on INTC's Tuesday close of $15.93. Analysts seem confident that the stock will remain healthy.
"Expect investors to view Intel's Q3 results and Q4 guide with some relief given modest expectations," Tim Luke, a semiconductor market analyst with Barclays Capital, said in a research note this morning. "We believe higher inventory guidance, slower corporate spending on servers, limited consumer visibility, and lower end mix shift are likely to restrain sentiment, but equally solid cash flow and execution on new products and market share should offer support at $16 if [calendar year 2009] EPS could offer $1.15 to $1.30."
