Intel sells fab, lowers capex on tepid Q4

By Colleen Taylor -- 1/17/2007

Intel Corp. on Tuesday announced tepid Q4 2006 financial results brought down by the increasingly competitive chip industry, as well as its restructuring program.

The MPU kingpin posted Q4 revenue of $9.7 billion, up 11.5 percent from Q3 revenues but down 5 percent from Q3 2005 sales. The chipmaker also reported Q4 operating income of $1.5 billion, up 8 percent from Q3 but down a whopping 55 percent from Q4 2005. And, following similar patterns, Intel further reported net income of $1.5 billion, up 15 percent from Q3 but a 39 percent drop from Q4 2005.

Intel said the lackluster results have moved the company to put its Fab 23 facility in Colorado Springs, Colo., up for sale, despite footing the bill for hundreds of thousands of dollars in upgrades there just more than a year ago. The results could also begin to explain the rumored flurry of investment moves Intel may soon be making at locations spanning the globe. According to reports, Intel has plans to close its existing chip plant in Jerusalem, erect a new Jerusalem fab, sell its flash-memory activities at a plant in southern Israel, and invest in a new fab in China.

According to the company, charges related to Intel's restructuring program, which has included a host of layoffs, were a major cause of the year-over-year declines. Intel said it ended 2006 with a workforce of 94,100 people, much lower than 102,500 in Q2, and even slightly below the target of 95,000 people.

Q4 gross margin was 49.6 percent, as compared to 49.1 percent in Q3, which Intel chalked up to the positive impact of higher microprocessor units and selling prices that were partially offset by higher factory underutilization charges along with flash memory write-downs and NAND startup costs. 

Intel also reminded that it completed the development of its next-gen, 45nm process technology, scheduled for production in the second half of this year, as well as completed samples of Penryn, the company’s first 45nm processor.

Looking ahead to Q1 results, Intel said it expected revenue to be between $8.7 billion and $9.3 billion with gross margins at about 49 percent. The company said spending would be between $2.6 billion and $2.7 billion and that capex for the full year will be down. Following 2006’s lowered capex of $5.8 billion, Intel yesterday projected a capex of $5.5 billion plus or minus $200 million, which the company said includes significantly higher equipment spending for the ramp of Intel's next-generation 45nm process technology.

Wall Street watcher Lehman Brothers weighed in this morning on Intel's Q4 results, projecting rough seas ahead in the increasingly competitive MPU market. The firm said that Intel's Q1 gross margin projection was below its estimates, which "underlines the fierce competitive environment" posed by Advanced Micro Devices, as well as the company's "potential absence of leverage despite Intel's restructuring efforts."

Lehman was not alone in noticing the lower results and estimates. Shares of Intel took a hit this morning, opening at $21.22 per share, down 5 percent from yesterday’s close.

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