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Intel Beats Expectations

Posted on Wednesday, Apr 15th 2009

Yesterday, Intel Corp. (NASDAQ: INTC) the world’s largest chip maker with annual revenue of $37.6 billion reported its first quarter results that beat estimates. Its CEO Paul Otellini said “We believe PC sales bottomed out during the first quarter and that the industry is returning to normal seasonal patterns. “ It however did not issue guidance for the second quarter.

Q1 revenue was down 26% y-o-y and 13% q-o-q to $7.1 billion. Net income was down 55% y-o-y but up 176% q-o-q to $647 million or $0.11 per share. Analysts estimated earnings of $0.02 per share on revenue of $6.98 billion. Earlier coverage is available here and here.

Intel ended the quarter with total cash investments at $10.3 billion, $1.2 billion less than the last quarter. It paid about $800.0 million in dividends and did not repurchase stock in the quarter.

Gross margin was 46%, down from 53% last quarter chiefly due to higher factory underutilization charges and startup costs as it began the ramp of 32 nanometer. It is on track to reduce its 2009 spending by $700.0 million from 2008. It reduced inventories by about $700.0 million in the quarter. It reduced its headcount by 1400 in the quarter and 20,000 since 2006 to about 83,000 employees.

By segment, Digital Enterprise Group revenue in the quarter was down 11% q-o-q to $4 billion and the shorter inventory pipeline led to more normal order patterns for most of the quarter.

Mobility Group revenue was $2.9 billion, down 17% q-o-q. Atom-based microprocessor and associate chip sets revenue was $219.0 million, down 27% q-o-q due reductions in downstream inventory and flat ASPs. With Atom, Intel has now entered the highly competitive territory in which Broadcom, Qualcomm, TI, ST, Infineon, Marvell are all trying to win. Unlike elsewhere, Intel is a relatively new entrant in this game.

By region, Intel said the U.S. and China markets showed relative strength while Europe, Japan, and the emerging markets showed continuing weakness.

Intel recently launched the dual-processor server versions of its Nehalem family of products. This week, it expects to ship its one-millionth Nehalem-based microprocessor.

Intel made some important observations about the demand trends in the PC market. It said order patterns strengthened during the quarter. Desktop sales hit the bottom but since early February have followed more normal patterns. Notebooks, which have a longer inventory pipeline, took longer to return to normal levels.

Otellini further said, “In terms of end-user consumption, the consumer segment has held up much better than the enterprise. This is particularly true in consumer notebooks, which continue to be the volume driver in this segment. Netbook sales continue to grow as anticipated and are clearly incremental volume for us in a difficult market.”

Intel did not provide a revenue outlook for the second quarter but for internal purposes, it is planning for revenue, which is typically lower in the second quarter, to be about flat to the first quarter. Gross margin percentage is expected in the mid-40s. It is currently trading around $16 with market cap of about $89 billion. It hit a 52-week low of $12.51 on November 18.

Chart for Intel Corporation (INTC)

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