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Intel beats on sales
No. 1 chipmaker reports stronger-than-expected top line but stock slips after hours.
January 14, 2004: 6:47 PM EST
By Paul R. La Monica, CNN/Money senior writer

NEW YORK (CNN/Money) - Intel Corp. Wednesday reported fourth-quarter earnings that doubled and sales that topped Wall Street forecasts, the latest signs of a solid recovery in the chip sector after a three-year downturn.

"2003 began with a question mark and ended with an exclamation point," Intel chief financial officer Andy Bryant told analysts on a conference call.

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Bryant said Intel's architecture business, which includes microprocessors, chipsets and motherboards, was the source of most of the growth thanks to increased demand for desktop and notebook computers and corporate servers.

But investors sold the stock after-hours, partly to take money off the table, and possibly due to confusion over whether earnings topped analysts' estimates and also concern that sales weren't even stronger.

The numbers

The world's biggest chipmaker reported sales of $8.74 billion, 22 percent higher than a year ago, and slightly higher than Wall Street forecasts of $8.66 billion. For the year, sales rose 13 percent to $30.1 billion.

Santa Clara, Calif.-based Intel reported net income for the quarter of $2.2 billion, or 33 cents a share, up from $1 billion, or 16 cents a share, a year ago. Wall Street was expecting earnings of 25 cents a share.

But the net income number included a previously announced charge to write-off goodwill associated with its struggling wireless communications chip business.

The charge, equal to nine cents a share, was higher than the six cents a share Intel told Wall Street to expect last month. Intel also said it had a nine-cent-a-share tax gain from divestitures, also higher than it originally expected.

For the full year, Intel earned $5.6 billion, or 85 cents a share, up from $3.1 billion, or 45 cents in 2002.

Shares of Intel (INTC: Research, Estimates), the best performing Dow stock of 2003, slipped about 3 percent in after-hours trading on Instinet, after edging lower in regular trading on Nasdaq.

Good, but not good enough

Wall Street's expectations for Intel and the rest of the semiconductor sector have surged in recent months and it looks like Intel's fourth-quarter sales, while extremely solid, may have not lived up to investors' increasingly bullish hopes.

Daniel Boone, managing partner with Atlanta Capital, which owns Intel in the Calvert Social Investment Equity fund, said he was expecting sales much higher than forecasts. Investor disappointment was not a major surprise given that Intel's stock more than doubled last year.

"Intel has come a long way and investors have to recognize that," Boone said.

Guidance for first-quarter sales was also somewhat lackluster.

The company said it expects first-quarter revenues to come in between $7.9 billion and $8.5 billion. The $8.2 billion midpoint is a shade less than the First Call consensus estimate of $8.24 billion.

What next?

"The numbers were OK but nothing to jump up and down about," David Wu at Wedbush Morgan Securities told CNN/Money.

Intel's gross profit margins, a closely watched measure profitability, came in at 63.6 percent for the fourth quarter. But for the first quarter, Intel said to expect gross margins of approximately 60 percent.

The first quarter is typically weaker than the fourth quarter since demand for computers and other high-priced electronics that feature semiconductors tails off during the holiday season.

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Wall Street is betting that improved corporate spending on hardware this year will lift sales and earnings for Intel and other semiconductor manufacturers.

But during the call, Intel president Paul Otellini said he was not expecting a "dramatic" change in IT spending, noting that upgrades of computers and servers are taking place on a "company by company and project by project" basis.

The company also said it expected $3.6 billion to $4 billion on capital expenditures this year, compared to $3.7 billion in 2003.

There had been speculation that Intel's initial capital spending budget would be a little higher and the fact that it wasn't caused shares of chip equipment makers to fall after hours as well. KLA-Tencor (KLAC: Research, Estimates) lost 2.6 percent while Novellus Systems (NVLS: Research, Estimates) and Applied Materials (AMAT: Research, Estimates) fell more than 4 percent apiece, according to Instinet.

So it appears that tech investors will need to re-evaluate how much they are willing to spend for technology stocks following last year's stellar run. To that end, shares of Yahoo! (YHOO: Research, Estimates) and Apple (AAPL: Research, Estimates), which are trading near their 52-week highs, fell in after-hours trading even though they also reported robust sales and earnings gains Wednesday.

The key now is for earnings estimates to head even higher and Intel's report may not spur Wall Street to move numbers up that much. Intel does not give earnings guidance. Wall Street is forecasting a profit of 28 cents a share for the first quarter and $1.25 a share for the year.

"This was a pretty good quarter but people may have set unrealistic expectations," said Patrick Ho, an analyst with Moors & Cabot.

Analysts quoted do not own Intel stock and their firms have no investment banking relationships with the company.  Top of page




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