Intel beat the market estimates but 3 cents
Intel's Net Rose 72% in Third Quarter on Higher Computer Processor Demand
By Cesca Antonelli
Santa Clara, California, Oct. 17 (Bloomberg) -- Intel Corp., the world's biggest semiconductor maker, said third-quarter net income rose 72 percent on higher demand for personal-computer processors. Sales met the company's lowered forecasts.
Net income rose to $2.51 billion, or 36 cents a share, from $1.46 billion, or a split-adjusted 21 cents, a year ago. Sales climbed 19 percent to $8.73 billion from $7.33 billion.
Intel last month said sales would miss targets because of slack demand in Europe. Revenue rose 5.2 percent from the previous quarter, meeting the company's revised forecast. Still, demand for chips that run PCs and electronics gear has climbed this year as more people link to the Web, and Intel has struggled to boost production. Fourth-quarter sales will rise 4 percent to 8 percent from the prior quarter, Chief Financial Officer Andy Bryant said.
``It's a lot better than what the bears were talking out there,'' said Tim Ghriskey, senior portfolio manager for Mellon Bank's Dreyfus Corp. unit. ``It looks pretty strong.''
The Santa Clara, California-based company's third-quarter net income includes a higher-than-expected $966 million gain from interest and the sale of investments. It also includes acquisition- related costs.
Excluding the costs, the company said profit would have been $2.9 billion, or 41 cents a share. On that basis, Intel was expected to earn 38 cents a share, the average analyst estimate in a First Call/Thomson Financial survey.
The shares rose as high as $38.38 after the report. They added 50 cents to $36.19 today before the release.
The stock dropped 22 percent on Sept. 22, Intel's worst-ever one-day decline, after the chipmaker scaled back its forecast. That drop wiped out about $91 billion in market value. The shares have lost a quarter of their value since then.
Unchanged Processor Sales
Investors have been skittish about computer-related shares since Intel's September warning, which was followed by similar cautions from PC makers Apple Computer Inc. and Dell Computer Corp.
A weak euro and skyrocketing oil prices in Europe hurt sales during the quarter, Bryant said. The chipmaker said it generated record revenue in all regions except Europe, led by higher sales of flash memory, which retains data when devices are turned off, and of networking and communications gear.
Sales of Intel's flagship Pentium and Celeron computer processors were unchanged from the previous quarter, better than some investors had anticipated.
``That was actually a positive surprise,'' Ghriskey said. ``We'd feared microprocessors would have a negative comparison. Flat is pretty good.''
Gross margin, or the percentage of sales left after subtracting manufacturing costs, was a better-than-expected 64 percent for the quarter. The company expects that to narrow slightly to about 63 percent in the fourth quarter, as it moves more production to using smaller wires.
December Quarter
The growth Intel predicted for the fourth quarter is lighter than usual for that period, Bryant said. The end of the year is traditionally strong, boosted by holiday PC sales. Revenue rose 12 percent in the fourth quarter of 1999 from the previous period.
Europe is usually an engine for growth in this period, so continued weakness there will hurt results, Bryant said.
``It's a little less than historical (growth) primarily driven by the fact that we still have some uncertainty,'' he said. ``We'll see a typically seasonal fourth quarter, with a little caution on Europe.''
The company faces heightened competition from Advanced Micro Devices Inc., which is shipping faster chips and snapping up market share. Plus, as Intel starts selling Pentium 4 processors later this year, investors expect price cuts on the current Pentium IIIs to crimp profit. Even so, Ghriskey said the forecast ``isn't bad'' because economic growth is slowing worldwide.
``Tech stocks are economically sensitive. This is a cyclical industry,'' he said. ``The 4 to 8 percent growth ain't bad.''
Intel reiterated that capital spending this year will total $6 billion, and executives said the company needs all the capacity it can get.
The company said gains on investments and interest in the fourth quarter will be about $950 million.