Skip to main content

Updated from April 15


(INTC) - Get Intel Corporation Report


Texas Instruments

(TXN) - Get Texas Instruments Incorporated Report

popped in recent trading after both companies issued better than expected profits, though analysts warned it's probably too early to get bullish on tech.

Intel tacked on $1 or 5.8%, rising to $18.13, while TI added $1.56 or 9.1% to $18.78.

The earnings results prompted some analysts to boost estimates, but at the same time, many voiced caution about reading too much into yesterday's news, given weaker results at other tech companies. For those seeking to read the tea leaves, earnings have so far produced a confusing mixed picture.

Offsetting the relatively good news at Intel and Texas Instruments,


(MSFT) - Get Microsoft Corporation Report

yesterday cut its financial outlook for the year. Also


(IBM) - Get International Business Machines Corporation Report

posted soft hardware sales earlier in the week, and two chip companies,

TheStreet Recommends

ST Microelectronics

(STM) - Get STMicroelectronics NV Report



(MCHP) - Get Microchip Technology Incorporated Report

, have recently warned they would miss profit targets.

Despite the better than expected earnings at Intel, said Fulcrum Partners' Clark Fuhs, "We are not convinced that a sustainable PC recovery is upon us." He's maintaining his neutral rating on the shares.

Added Lehman's Dan Niles in a morning note, "While we want to go back to being bullish post-Iraq, we are having trouble reconciling Intel with Microsoft." Yesterday Microsoft said PC unit growth came in at the low end of expectations, and that demand for PCs seems likely to remain sluggish.

For its first quarter, Intel posted virtually flat revenue and earnings, and in a surprise move, issued second-quarter sales guidance with a midpoint above the current consensus estimate.

Many analysts had been expecting the company to guide sales down for the second quarter, since revenue usually dips slightly in the period.

Asked what gives the company confidence that it can outperform the usual patterns, Chief Financial Officer Andy Bryant pointed out that in both the fourth quarter 2002 and the first quarter this year, Intel's core microprocessor business had performed toward the high end of usual seasonal trends.

"We're seeing something we haven't seen in almost two and a half years," he said. "We don't see any sign of inventory build. It feels modestly better." He added, "We don't want to get carried away, but yeah, we actually feel a little more confident."

For the first quarter, the company posted sales of $6.75 billion and earnings of 14 cents a share, according to generally accepted accounting principles. The results beat consensus expectations, which were for $6.7 billion in sales and a profit of 12 cents a share, according to Thomson Financial/First Call.

Last year in the same period, the company posted revenue of $6.8 billion and GAAP earnings of 14 cents a share.

Gross margin was 52%, which was 100 to 200 basis points higher than expected. Part of the benefit was because Intel was able to sell microprocessors and chipsets in reserved inventory, while some was due to manufacturing efficiencies.

"Our financial performance for the quarter was solid, with our computing-related business performing better than expected and our flash business coming in below expectations," said Chief Executive Craig Barrett.

The company forecast second-quarter sales of $6.4 billion to $7 billion. The guidance midpoint of $6.7 billion is above current consensus estimates for $6.6 billion. Wall Street had been expecting the company to nudge guidance down from the consensus, since sequential revenue typically has posted a drop of about 3% in the period.

The midpoint of the guidance would represent a 2% drop from the first quarter, but would imply year-on-year sales growth of 6%.

"I think Intel gave an in-line quarter with just slightly better than expected guidance," summed up Woody Calleri, an analyst at Midwest Research. The two-cent upside, he said, was "kind of bogus because they sold written-off inventory."

"It's still going to be a difficult year," says Calleri. "I think stocks will have a positive bias over the next couple weeks. So I probably wouldn't go short, but I would not go long for too long a time frame." Midwest does not do banking.

By product segment, first-quarter sales in the microprocessor division were about flat with last year, while operating income grew 6.2%.

In the wireless division, which includes flash, sales rose 3%, but the operating loss deepened from $68 million to $94 million. Wireless sales dropped much more sharply on a sequential basis, down 29% from the fourth quarter. The usual seasonal decline was "exaggerated by lost business incurred as a result of the flash price increase at year end," said President and Chief operating Officer Paul Otellini. "That likely caused us to lose market share in the quarter."

Sales in communications, which includes Ethernet connectivity products, fell 3%, with a slightly smaller operating loss than last year.