Updated from 5:23 p.m. EDT
, the world's largest computer chipmaker, reported Tuesday that its second-quarter earnings nearly doubled, exceeding Wall Street's estimates, helped by $2.3 billion in gains on its investment portfolio.
The Santa Clara, Calif.-based company reported net income of $3.5 billion, or 50 cents a diluted share, excluding acquisition-related costs. That compares with net income of $1.78 billion, or 26 cents a share, in the second quarter of 1999. The earnings take into account a recent 2-for-1 stock split by the company and exceed the consensus Wall Street estimate of 49 cents a share, according to
First Call/Thomson Financial
But Intel's operating income, which excludes the one-time charges and gigantic investment gains, rose only 4%, even as revenues rose 23%, to $8.3 billion, from $6.7 billion in the year-earlier period.
Intel's net income for the quarter included an already-announced one-time
charge of $200 million related to its replacement of defective motherboard chips, plus a colossal $2.3 billion in non-operating income due to gains on the sale of equity investments. Including acquisition-related costs, Intel's net income rose 79%, to $3.1 billion, or 45 cents a share.
A large portion of Intel's investment gains came from sales of chipmaker
filed to sell about $2.6 billion worth of Micron stock between May 4 and June 30.
On the company's conference call, CFO Andy Bryant said that, as of Tuesday, "there's certainly not much left to sell, if any."
"In the second quarter, we came to the conclusion that the Micron investment wasn't delivering as a strategic investment and should be reallocated," Bryant explained. Of Intel's investment gains, he said, "It's not a number that we try to manage."
The wild fluctuations of unmanaged investment gains have equally dramatic effects on Intel's bottom line. Bryant noted that if investment gains had matched the guidance Intel had provided to analysts at the beginning of the quarter -- $725 million -- its earnings would have been 36 cents a share, including the motherboard replacement charge. Analysts had raised their estimates in late June when Intel announced that its investment income would be much greater than expected.
Intel said that on July 1 its investment portfolio was valued at $7.5 billion.
Excluding all one-time events, the company's operating earnings edged up 4%, to $2.4 billion, from $2.3 billion in the year-earlier period.
Intel, which dominates the market for PC-based processors and is largely seen as a bellwether for the computer industry at large, said the jump in revenue and per-share earnings was helped by strong demand for its microprocessor chips, flash memory units and network-related chips.
The company also said its gross margin, the profit on each unit sold, fell in the second quarter to 60.4%, from 62.6% in the first quarter, largely because of the $200 million charge. But Intel says it expects its margin to drift back up to the 63% to 64% range.
The company also expects revenue to rise in the second half, helped by the release of its new Pentium 4 microprocessor and industrywide upgrades to the new
Windows 2000 platform.
In a conference call, Intel Chief Financial Officer Andrew Bryant said that tight supply of chips and chip-making materials, combined with heavy demand, kept chip inventories low in the second quarter, a scenario that is likely to carry into the third quarter.