Intel’s mixed results: Which way is the wind blowing?

Jan. 17. 2008 – Analysts and investors voted with their feet after the industry’s bellwether company talked about its 4Q07 results, and outlook for 1Q08 and FY08. But what’s the takeaway message for the rest of the semiconductor industry and its suppliers?

Intel’s 4Q07 financial results noted record revenues of $10.7B with record MPU and chipset units and revenue, but were nearly $100M below expectations thanks to NAND flash ASP softness. Gross margins were up 8.5 points Y-Y (58%), operating income doubled Y-Y ($3B), and net income ($2.3B) was up both Q-Q (27%) and Y-Y (51%), but it also came up short.

And the 1Q08 outlook didn’t impress Wall Street either: a 9% sequential dip in sales to ~$9.4-$10B, with the midpoint below the Street’s $9.9B expectations and lower than the seasonal average of a ~7% dropoff. Gross margins are expected to drop a couple of points to 56%, due to new 65nm chipset products not yet qualified for sale, and seasonally low CPU units. Gross margins for FY08 are seen at ~57%, a five-percentage point improvement thanks mostly to lower unit costs in the computing business, and also divestiture of some lower margin businesses (read: NOR flash, carved away in the proposed JV “Numonyx” with STMicroelectronics).

In the conf. call discussing results, Intel CFO Stacy Smith acknowledged the company is being cautious looking at a buildup of “a variety of small factors,” including continued weak NAND flash pricing and the specter of a US economic slowdown. Still, he reiterated the company’s 10% Y-Y growth for two straight quarters as evidence of continued business growth. Inventories are “lower than I’d like,” and would like to see them grow a little bit in 1Q with 45nm Penryns. And he sees no significant signs of economic weakness elsewhere.

President/CEO Paul Otellini said that while neither Intel nor its customers see anything on the horizon, and that markets outside the US represent 75% of Intel’s business, nevertheless he acknowledged that he has “the same caution that I think that everybody in America who watches CNBC has today,” and worries that all the handwringing and dire predictions “may be a self-fulfilling prophecy.” “It would be imprudent not to be cautious,” he noted.

Still, Intel did provide some good news with small increases in technology investments — 2% increase in R&D+MG&A to $11.4B, driven by a shift in process development work from 45nm startup activities to 32nm development, and 4% hike in capital spending to $5.0-$5.4B. Smith also hinted that hidden in that small capex increase are better internal results in improving utilizations and efficiencies. “We’ve increased the peak that we are building for in 45nm and we are doing it with less capital than we originally anticipated,” he said. Otellini also noted that Intel is preparing its output to be in line with industry expectations for low double-digit PC unit growth.


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