Strong PC demand in the second half of 1998 helped lift Intel Corp.'s fourth-quarter revenue to US$7.6 billion, a record for the company and a 17 per cent increase from the $6.5 billion revenue reported for the same quarter last year, Intel said yesterday.
Fourth-quarter earnings per share were $1.19, handily beating the consensus estimate of $1.07 per share from analysts polled by financial watchdog First Call Corp., and up from 98 cents per share a year ago. Net income for the quarter was $2.1 billion, up 18 per cent from $1.7 billion a year ago.
For the full year, which ended Dec. 27, revenues were $26.3 billion, an increase of 5 per cent on 1997 revenues of $25.1 billion and another record for Intel, the company said. Sales reached record levels in the Americas, Europe and Asia Pacific, Intel said in a statement.
The news from the world's largest maker of PC microprocessors wasn't all good, however.
Net income for the year was down 13 per cent from fiscal year 1997, to $6.1 billion, Intel said. Earnings per share for the year slipped 11 per cent, to $3.45.
Intel warned that revenue for the first quarter of 1999 will likely be down from the quarter just finished. The company cited expected seasonal slowness.
Optimism over today's report caused Intel's share price to reach a record high yesterday before closing at $139.75. Intel's shares closed today at $135.56, down $4.19.
In a conference call yesterday, Intel officials said they hope new Celeron processors released earlier this month will help reverse losses in the company's share of the low-end, U.S. retail market, where rival Advanced Micro Devices Inc. made ground in 1998 with its K-6 brand of processors.
"We believe we took our eye off the ball over the course of 1998," admitted Paul Otellini, executive vice president and general manager of the Intel Architecture business group. The company will roll out faster Celerons and cut prices during 1998 in a bid to restore its position at the low-end, Otellini said.
Nonetheless, Intel said it sold a record number of microprocessors during the quarter. Unexpectedly high demand for its mainstream Pentium II processors left the chip giant unable to meet some orders moving into the start of the new fiscal year, Otellini said.
Later this quarter Intel will debut its Pentium III processor -- formerly called Katmai -- which includes new instructions expected to greatly boost a PC's graphics and multimedia performance. During the year Intel will introduce an optional, smaller packaging type for that chip which will allow PC makers to experiment with smaller, innovative PC designs, Otellini said.
Intel's Pentium III chips will gradually replace its Pentium IIs during the year, although Intel will still offer Pentium II-based systems for businesses that want to retain a uniform computing environment, Otellini said.
Intel also shipped record numbers of chipsets and flash memory chips during the quarter. Sales of motherboards, embedded processors and microcontrollers also increased, the company said.
"Intel achieved its 12th consecutive year of revenue growth in spite of the challenges of a turbulent market in 1998," Craig Barrett, president and chief executive officer of Intel, said in the statement.
Expenses during the quarter were up 16 per cent from the third quarter, higher than the revised guidance Intel gave in November that spending was expected to be up 8 to 10 per cent. The higher expenses were attributed in part to higher than expected utilisation of Intel's Intel Inside marketing program.
Intel also made the following predictions for the year ahead:
-- Gross margin percentage in the first quarter of 1999 is expected to be down slightly from 58 per cent in the fourth quarter. Intel's gross margin expectation for 1999 is 57 per cent, plus or minus a few points, compared to 54 per cent for all of 1998. In the short term, Intel's gross margin percentage varies primarily with revenue levels and product mix.
-- R&D and other expenses in the first quarter of 1999 are expected to be approximately 2 per cent to 4 per cent lower than fourth quarter expenses of $1.6 billion. Expenses are dependent in part on the level of revenue.
-- R&D spending is expected to be approximately $3 billion for 1999, up from $2.7 billion in 1998.
-- The company expects interest and other income for the first quarter of 1999 to be approximately $200 million, assuming no significant changes in expected interest rates or cash balances, and no unanticipated items.
-- Capital spending for 1999 is expected to be approximately $3 billion, down from $4 billion in 1998, which included approximately $475 million of capital assets acquired from Digital Equipment Corp. The lower capital spending for 1999 is primarily a result of reduced investment for new facilities and the fact that the company has made more efficient use of manufacturing equipment.
Meanwhile, AMD is also expected to post strong fourth-quarter earnings. Analysts expect the Intel rival to report earnings per share of 18 cents, up from a loss of 9 cents per share in the fourth quarter of 1997, according to First Call.
AMD doesn't plan to take Intel's Pentium III launch lying down, either. In the same timeframe AMD plans to release a 400MHz processor dubbed Sharptooth, which carries a hefty 256K bytes of on-chip Level 2 cache as well as AMD's own graphics extensions, 3DNow.
The company is also gearing up to release its fastest K6-2 mobile processor to date.
Intel, in Santa Clara, California is at http://www.intel.com/.