RealMoney Silver - Intel's Earnings Should Calm the Market

Intel's Earnings Should Calm the Market
By Bob Faulkner
RealMoney Contributor
4/15/2008 7:00 PM EDT

Intel (INTC) reported first quarter 2008 results after the close tonight that were in line with consensus expectations. Maybe more important to investors, its outlook for the June quarter is for more of the same.

Revenue in the quarter was $9.67 billion (up 9% year over year; down 10% sequentially), and GAAP EPS were 25 cents. Gross margin was 54%, up 370 basis points year over year but down 4300 basis points sequentially, due to lower volumes and the previously announced weak NAND pricing. OM was 21%, up 240 basis points from last year and down 710 basis points sequentially. The company took a non-cash charge of approximately $275 million for the Numonyx joint venture, which depressed the operating margin in the period. The cash balance decreased about $1.7 billion in the quarter after the repurchase of 122 million shares of stock. A/R increased about $150 million, with DSOs up 3 days to 25 days. Conversely, inventory decreased about $100 million, with DOI down about 2 days to 66 days.

Microprocessor revenue was $6.85 billion, up 14% year over year but down 6% sequentially. Server revenue hit record levels with very strong demand for new 45nm processors. This was especially true within the U.S. Mobility units were up sharply on a year-over-year basis as well, and management expects notebook units to cross over the 50% level (vs. desktops) this year vs. prior expectations. The company also commenced shipping of its Atom processors in the quarter as well.

The spinoff of the NOR flash business to Numonyx will result in another charge in the second quarter relative to headcount. Beyond that, Intel will continue to produce some NOR product for the JV through the rest of the year, but at much lower levels. Management also announced that it will review its NAND flash position with Micron (MU) and is delaying capacity adds until 2009 at the earliest.

Within the business units, Enterprise revenue was $5.3 billion, up 11% year over year and down 8% sequentially. OM was 32.5%, up more than 1200 basis points from last year but down about 470 basis points from the fourth quarter on lower revenue. The Mobility group revenue was $3.67 billion, up 11% year over year and down 11% sequentially. OM for Mobility was 32%, a material decline on both year-over-year and sequential metrics, in large part because it carries an increasing level of corporate overhead as it grows.

Management guidance for the June quarter anticipates revenue in the $9 billion to $9.6 billion range (up 4% to 11% year over year). GM is expected to be 56% ±2 points, with opex in the $2.8 billion to $2.9 billion range and another $250 million in charges. Gains on investments and interest should be approximately $75 million and the tax rate of 33%. By my calculations, this translates into EPS of approximately 25 cents to 26 cents. Current consensus is for revenue of $9.25 billion, and EPS of 28 cents.

The bottom line is that INTC had a very good quarter despite the flash issues. It is clearly gaining market share in servers and notebooks and, more importantly, its technology lead should maintain those gains. With new market opportunities coming on line via the Atom processor and WiMAX, the outlook appears quite promising.

Intel is one of the many technology and telecommunications stocks that Bob Faulkner monitors and discusses weekly in The Telecom Connection.