Intel reports 'blowout' Q3 financials, Q4 guidance

Industry watchers applaud the company and its Q4 revenue guidance of $10.1 billion, which would show a 23% year-over-year increase and would place sales back at levels achieved before the economic meltdown.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 10/14/2009

Intel Corp Tuesday afternoon reported on its September quarter with revenue of $9.4 billion showing the strongest Q2 to Q3 sales growth the company has seen in 30 years.

The sequential revenue gain of $1.4 billion bested Street estimates for Intel sales and also bested the company's own raised guidance in late August, calling for a $1 billion gain on Q2's $8 billion in sales. At that time the company noted higher than expected demand for MPUs and chipsets.

In its Q3 report, Intel reported record MPU and chipset units. The company also reported that mobility group revenue was up 19% sequentially, digital enterprise group revenue was up 14% sequentially, and Atom MPU and chipset revenue was up 14% sequentially for sales of $415 million. As compared to Q3 2008, total revenue was down $828 million.

Meanwhile, Q3 net income of $1.9 billion was up $2.3 billion sequentially but down $158 million year over year. Q3 earnings per share of 33 cents were up 40 cents sequentially and down 2 cents year over year.  Q3 gross margin of 57.6% was up 7 points sequentially and was higher than the company's expectations.

"We are very pleased with the company’s third quarter," Paul Otellini, Intel president and CEO, said in on a conference call with analysts Tuesday afternoon. "The strong financial performance is a result of having the right products at the right cost at the right time for a recovering global economy."

Otellini continued to state that Intel's strength mostly remains in consumer-driven industries. "Our mobile business had a particularly strong quarter," he said. "We saw the sequential unit growth rate of notebook processors and chipsets exceed the growth rate of Atom MPUs and chipsets. While Atom and netbooks are important growth drivers for us, our traditional notebook business remains a primary drivers of revenue growth. We expect that to continue."

According to Intel CFO Stacy Smith, the PC market "is recovering nicely." He said on the call that Intel's MPU revenue sans Atom has grown 23% since the market bottomed out in Q1.

"For the fourth quarter, we are forecasting a seasonal increase in revenue, taking the midpoint of our forecast range to $10.1 billion, a 23% increase from the fourth quarter of 2008." Smith guided. "We are forecasting the midpoint of the gross margin range to increase another 4.5 points to 62%."

Smith noted the recovering overall market, as well as factory efficiencies, in making the Q4 guidance. Craig Berger, a financial analyst at FBR Capital markets, made similar points in his research note on Intel's Q3 this morning.

"Intel delivered more than the blowout Q3 financial results and Q4 guidance that investors were looking for," Berger said. "Q4 revenue guidance of $10.1 billion is back to levels achieved in Q3 2008, before the credit-driven financial meltdown, while Q4 gross margin guidance of 61% is three points higher than seen in Q3 2008 (and gross margin guidance seems conservative). Whether Intel can sustain greater than 60% gross margins remains questionable; however, we are encouraged that leaner factory head count, improving production cycle-times, and more equipment reuse between process nodes (including 32 nm) are driving tangible benefits. Further, with fab utilizations in the 80 to 90% range, Intel still has headroom to ramp revenues to $11.5 billion should demand exist.

"With a sharp demand/revenue recovery, still robust gross margins likely in 2010, a new ramping 32-nm process, and continued execution, Intel's 2010 earnings power looks impressive, though obviously Q4 sell-through trends are of paramount importance," Berger said.

Although questioned by financial analysts, neither Smith nor Otellini would offer estimates for 2010 on the company's Q3 call.

On the positive news, Intel's stock, INTC, closed up 1.66% today and was credited as one of a handful of stocks that helped the Dow Jones Industrial Average close above the 10000 mark for the first time since October 3, 2008. INTC closed at $20.83, up from its Tuesday close of $20.49. The stock also showed significant gain on its year-ago price, when it closed at $15.93 on October 14, 2008.*

*Editor's note: This story was updated at 6:15pm eastern to include INTC price information.