Intel matches Q1 forecast

Intel Corp. reported first-quarter earnings Tuesday that matched analysts' predictions, but saw net income decline from a year earlier thanks in part to continued weak spending on IT products in both Europe and the U.S.

Excluding acquisition-related costs, the chip maker reported net income of US$1.0 billion for the three months ended March 31, down 7 percent from a year earlier. Earnings for the period, also excluding acquisition-related costs, came in at $0.15 per share, down 6 percent year-over-year, Intel said in a statement. The earnings figure matched the consensus estimate of analysts polled by Thomson Financial/First Call.

Revenue was $6.78 billion, up slightly from $6.68 billion in the same period last year. Analysts had been expecting revenue of $6.79 billion on average, Thomson Financial said.

While demand in emerging markets remains solid, established markets such as the U.S. and Europe continue to be affected by weak IT spending, Craig Barrett, Intel's chief executive officer, said in the statement. Aggressive investments in research and development and manufacturing helped sustain Intel's profits in a "generally soft environment," he said.

Overall, Intel's microprocessor business performed better than expected, with average selling prices buoyed by strong sales of Intel's higher-end Pentium 4 chips. Demand for networking and communication products, including flash memory chips that are widely used in cellular phones, was down from a year earlier, said Andy Bryant, Intel chief financial and enterprise services officer, in a conference call after the results.

Microsoft Corp.'s Xbox game console gave the chip maker a slight boost, lifting the number of microprocessors it sold above fourth-quarter levels. "Without Xbox, the volume would have been down a little bit from Q4, but (still) better than we expected," Paul Otellini, Intel president and chief operating officer, said during the call.

The company this quarter will start selling a new chip set for the Pentium 4, called the 845G, which includes integrated graphics and USB 2.0 capabilities that are intended to boost performance, Otellini said. The chip set will be offered at various levels of pricing and performance, he added. Intel remains confident that it can hit 3GHz with its Pentium 4 processor by the end of the year, he added. Its fastest Pentium 4 today runs at 2.4 GHz.

For lower cost systems, Intel will start selling Celeron processors this quarter that use its NetBurst architecture, Otellini said. The technology basically tweaks the inner workings of a chip to boost performance, and it is offered currently only with more expensive, higher end chips.

For notebook users, Intel plans to release faster mobile Pentium 4 processors later this month, Otellini said. And for server customers, the second generation of Intel's 64-bit processor, called McKinley, is still expected to ship in volume in the first half of the year, he said.

Asked if corporations are likely to embark on another PC upgrade cycle, Otellini replied: "We haven't seen any signs of that to date. The installed base of PCs at Fortune 1000-type accounts is getting relatively old and will have to be upgraded; I just don't see it taking place in any large numbers at this time."

The Santa Clara, California, chip maker announced Monday that it had settled one of two patent infringement lawsuits brought against it by Intergraph Corp. That settlement, which required Intel to pay Intergraph $300 million, reduced earnings per share in the first quarter by $0.01, Intel said.

Using U.S. Generally Accepted Accounting Principles, earnings for the quarter came in at $0.14 per share, up from $0.07 a year earlier. The comparison is misleading, however, because of changes Intel made to its accounting policies since last year. "It's not an oranges-to-oranges comparison," Bryant said.

The Asia-Pacific region widened its lead as Intel's main source of revenue, Otellini said, having overtaken the Americas in the fourth quarter last year. Demand for mobile chips was strong in Taiwan, and chip sales in China and India were also strong, he said. Sales declined in the Americas because of reduced spending among corporations and because PC production continues to be shifted to elsewhere in the world, he said. Revenue from Europe also declined, he said.

Second-quarter revenue is likely to come in between $6.4 billion and $7.0 billion, Bryant said. Reflecting the wide range of that estimate, Intel said financial predictions remain "particularly difficult" to make in the uncertain climate. "We're planning for a seasonal pattern in the second half," Otellini said on the conference call.

He and Bryant sounded optimistic and upbeat on the call, if a little cautious. This was the first time in four quarters that Intel has seen its revenue increase year over year, Bryant said.

"We continue to improve in difficult times and are extremely well positioned to take advantage of the inevitable market recovery," Otellini said.

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James Niccolai

PC World
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