Intel Earnings Jump Sharply in the Quarter, but Sales Dip

April 18, 2007
Intel Earnings Jump Sharply in the Quarter, but Sales Dip

By LAURIE J. FLYNN
SAN FRANCISCO, April 17 â€” Intelâ€™s first-quarter earnings appeared to reassure investors Tuesday that the companyâ€™s profit margins were finally starting to improve after a period of price cutting and heavy spending.
The company, the worldâ€™s largest chip maker and a closely watched indicator of the health of the technology industry, said that first-quarter profit rose 19 percent partly as a result of a one-time tax benefit and the companyâ€™s move to a more efficient production process, while sales fell slightly.
â€œWe certainly continue to see a competitive pricing environment,â€ Andy D. Bryant, the chief financial officer, said in a conference call Tuesday with analysts. â€œBut we find ourselves in a better position than we were in a year ago.â€
On the critical measurement of gross profit margin, the company surprised Wall Street by surpassing its own projections for the first quarter. Gross margin was 50.1 percent, higher than the 49.6 percent recorded in the previous quarter and above the 49 percent Intel projected for the quarter in January.
The company attributed the good news to lower microprocessor unit costs and the selling off of reserved inventory, which helped offset lower revenue and the high start-up costs of moving to 45-nanometer production, a more advanced chip-making process.
Similarly, the company projected that gross margin for the year would be about 51 percent, higher than its earlier forecast of about 50 percent.
Investors applauded the prospect that margin pressure was finally easing. The report was released after the marketâ€™s close Tuesday, and Intelâ€™s shares rose 47 cents, or 2.24 percent, in after-hours trading. In regular trading, Intelâ€™s stock increased 29 cents, to close at $20.98 a share.
The company, had â€œstrong momentum and relatively stable pricingâ€ during the first quarter, said Paul S. Otellini, Intelâ€™s chief executive.
Intel reported a profit of $1.61 billion, or 27 cents a share, compared with $1.36 billion, or 23 cents a share, a year earlier. Intel executives said a tax benefit of $300 million raised earnings by 5 cents a share. Intelâ€™s first-quarter sales declined 1 percent, to $8.85 billion, from $8.94 billion.
Analysts surveyed by Thomson Financial forecast earnings of 22 cents a share, excluding the tax benefit, and sales of $8.9 billion.
Mr. Bryant said Intelâ€™s profit improved in large part because average selling prices stayed relatively stable. New microprocessor products for notebook computers and servers helped Intel keep prices up.
For the last several years Intel has been locked in a price war with Advanced Micro Devices, a battle that has taken its toll on profit margins at both companies. But while Intel appears to be reviving, A.M.D. surprised investors last week by announcing that it would report revenue in the first quarter of $1.23 billion, far below the $1.53 billion analysts had forecast.
A.M.D. blamed lower selling prices for its processors, as well as lower unit sales, and said it would make cutbacks in hiring and spending to further reduce operating costs. The company said it would reduce 2007 capital spending by about $500 million from $2.5 billion. A.M.D. is scheduled to release its earnings report Thursday.
Cody Acree, an analyst with Stifel Nicolaus, called Intelâ€™s quarter â€œencouraging,â€ and said it appeared Intel was gaining back lost market share in virtually all categories. â€œIn a challenging environment we think Intel is executing well, especially when you look at the poor executing of its nearest competitor,â€ he said.
Looking ahead to the second quarter, Intel expects revenue of $8.2 billion to $8.8 billion, below analystsâ€™ forecast for revenue of $8.86 billion. But Mr. Bryant told analysts that the slowdown was in part a normal seasonal pattern.
Intel executives Tuesday pointed to developments in chip-making that are enabling it to pack more features into its processors. That, in turn, is helping keep costs down and prices stable. At a developer conference in Beijing on Monday, Intel described plans to feature a â€œsystem on a chipâ€ in the coming quarters, a move that leads to increased efficiency, lower prices and less energy use.
The company also said Tuesday that its corporate restructuring was a quarter ahead of schedule, and that it had already reduced its headcount by 6,000 workers, to about 92,000.
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http://www.nytimes.com/2007/04/18/technology/18chip.html?ref=technology

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Intel Earnings Jump Sharply in the Quarter, but Sales Dip

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Intel Earnings Jump Sharply in the Quarter, but Sales Dip

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