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Mobile Processors Increasingly Important For Intel

Posted on Wednesday, Jul 15th 2009

Yesterday, Intel Corporation (NASDAQ:INTC), the world’s largest chip maker with annual revenue of $37.6 billion, reported better-than-expected second quarter results, raising hopes that the PC industry is on its way to recovery. It also provided a forecast that topped estimates. Let’s take a closer look.

Q2 revenue was down 16% y-o-y and up 12% q-o-q to $8.0 billion, beating analyst estimates of $7.3 billion. However, the company reported net loss of $398 million or $0.07 per share, versus net income of $2 billion or $0.35 per share last year and $1 billion or $0.18 per share last quarter. Excluding charges of $1.45 billion related to the European Commission fine for anti-competitive practices in the PC market, net income was $1.0 billion or $0.18 per share, beating analyst estimates of $0.08 per share.

Gross margin was 50.8%, up from 46% last quarter, driven by higher CPU sales and offset partially by lower CPU ASPs. Intel continued to rein in its spending, and the number of employees was down by 2,000 to 80,500. It reduced inventories by an additional $240 million after the $700 million decline last quarter. Finally, it paid nearly $800 million in dividends and ended the quarter with total cash investments of $11.3 billion, up from $10.3 billion last quarter.

Intel recently announced its plans to acquire Wind River, a global leader in Device Software Optimization (DSO). With this $884 million acquisition, Intel is looking to strengthen its position in the mobile market in order to reduce its dependence on PCs. It also entered into an agreement with Nokia for open source software collaboration and the acquisition of a 3G license. They would be working around several open-source mobile Linux software projects, including the Moblin platform for Atom-based processors and the Maemo operating system developed by Nokia. Licensing Nokia’s baseband technology should help Intel get wireless design wins for its Atom processor.

By segment, Digital Enterprise Group revenue in the quarter was up 7.5% q-o-q to $4.3 billion. Mobility Group revenue was $3.5 billion, up 20% q-o-q. Atom-based microprocessor revenue grew 65% q-o-q to $362 million driven by growth in netbooks. Atom is also making its way into net-tops and embedded applications. The next version of its Atom processor, known as Moorestown, will be based on 45nm manufacturing technology and would reduce power consumption by 50 times. There were about 1,200 new designs in Atom in the embedded space, which brought in about 120-150 new customers.

By region, Asia-Pacific sales were $4.41 billion, up 21% q-o-q. Americas revenue grew 12% q-o-q to $1.7 billion while revenue from Europe fell 9.4% q-o-q to $1.153 billion.

Although consumer purchases showed a strong rebound in Mobile Processor shipments, Enterprise PC volumes remained weak. Server Processor volumes were better than expected, driven by a strong ramp of the company’s Nehalem-based products. CEO Paul Otellini said corporate spending is not expected to improve this year and that Microsoft’s new OS, Windows 7, is likely to improve spending only next year.

For the past two quarters, Intel has not provided any guidance but based on its strong performance in the second quarter, it expects third quarter revenue to be about $8.5 billion, plus or minus $400 million. Analysts forecast revenue of $7.8 billion. Gross margin is expected to be about 53%. The company also reduced its annual capital spending for 2009 to about $4.7 billion, plus or minus $200 million, compared to $5.2 billion in 2008. This spending reduction comes as result of increased roll-forward in capital from 45- to 32-nanometer and improved factory efficiencies. It is currently trading around $17 with market cap of about $94 billion.

Chart for Intel Corporation (INTC)

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Embedded processors and the related semiconductor IP is a very promising investment right now. I just blogged about this:

http://danielnenni.com/2009/07/02/semiconductor-ip-companies-still-in-play/

With a strong market push towards commodity pricing models for semiconductor IP, Intel will have a distinct advantage! I’m very short on ARM and MIPS, very strong on VIRL.

D.A.N.

Dan Nenni Wednesday, July 15, 2009 at 1:38 PM PT