NEW YORK (CNN/Money) -
Intel Corp. reported better-than-expected earnings and sales for the first quarter on Tuesday.
The world's largest manufacturer of semiconductors said it earned net income of $913 million, or 14 cents a share, on sales of $6.75 billion for the quarter ended March 29. Analysts were expecting Intel to report earnings of 12 cents a share on sales of $6.7 billion, according to First Call. Intel earned $936 million, or 14 cents a share, on sales of $6.8 billion a year ago.
Industry analysts had lowered their expectations for Intel since the company issued a sales warning for the quarter last month, blaming weakness in its flash memory business. Shares of Intel (INTC: Research, Estimates) fell 3 cents to $17.13 in regular trading but surged more than 5 percent in after-hours trading, according to Island ECN.
In addition to Intel's strong report, chip companies Texas Instruments and Motorola also posted solid results for their latest quarter. And software giant Microsoft reported better than expected sales and earnings as well.
Stronger microprocessor sales, weaker currency help
In a written statement, Intel CEO Craig Barrett said that the company's PC-related businesses, sales of microprocessors, did better than expected in the quarter, offsetting weakness in flash memory chips, which are key components of cell phones and other wireless devices.
The company also seemed to benefit from a weaker dollar. More than 70 percent of Intel's sales in the first quarter came from outside North America. Sales in the North America division fell 12.9 percent from a year ago while revenues in its Europe, Asia Pacific and Japan segments were higher than in the first quarter of 2002.
Intel's gross margins, a measure of how much profit a company is wringing from sales before operating expenses and an important metric for semiconductor companies, came in at 52 percent, much better than expected.
When Intel lowered its sales guidance last month, it said that gross margins would likely fall below 50 percent. The company attributed the positive surprise to lower-than-expected startup costs, an unanticipated sale of inventory and stronger sales of higher margin products. To that end, Intel said that average selling prices (ASP) of microprocessors were slightly higher than in the fourth quarter of 2002.
For the second quarter, Intel said that gross margins would come in at about 50 percent. The company also reaffirmed its full-year gross margin target of 51 percent.
"It's very important to get gross margins moving in the right direction," said Alex Vallecillo, a senior portfolio manager with National City Investment Management, subadvisor for the Armada family of mutual funds.
As a result, Vallecillo said that he would not be surprised if the consensus earnings estimate for the second quarter increases from 12 cents a share to 13 cents a share.
Outlook better, but no recovery yet
The company gave murky sales guidance for the second quarter, however. Intel said it expected revenue to be between $6.4 billion and $7 billion. But Wall Street seemed to take this broad range in stride since the midpoint of $6.7 billion is higher than the current Wall Street consensus of $6.6 billion.
But Michael Cohen, director of research with PacificAmerican Securities, said that he thinks Intel was just being overly cautious regarding its revenues and that it could raise guidance at its mid-quarter update on June 5. Cohen does not own the stock and his firm has no investment banking relationship with it.
During the conference call, Intel CFO Andy Bryant said that he did feel more confident about business prospects than he has in recent months. He stopped short of predicting a recovery in IT spending, however.
And Paul Otellini, Intel's president, said that sales of the company's new wireless chip, Centrino, were off to a good start in the first quarter and that the second quarter was looking good as well.
The company did not provide specific numbers for Centrino sales, though.
Intel also reaffirmed that capital spending would be lower than in 2002, giving a forecast of $3.5 billion to $3.9 billion in capital expenditures for 2003. Intel spent $4.7 billion last year. In addition, the company reaffirmed that R&D spending would be $4 billion, flat with last year.