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Intel beats 4Q forecasts
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January 13, 1998: 7:40 p.m. ET
But chip maker warns investors of flat revenues going into 1998
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NEW YORK(CNNfn) - Helped by a 4-cent gain resulting from tax adjustments and increases in Pentium II shipments, Intel Corp. Tuesday reported a fourth- quarter profit of $1.7 billion - beating official Wall Street expectations but falling short of the highest so-called "whisper" estimates.
The world's largest chip maker earned 98 cents a share in the three months ended in December, up from Wall Street's consensus estimate of 90 cents but below the top whisper estimate of $1.05. Whisper numbers are unpublished forecasts circulated around Wall Street trading floors in the final days before a company releases results.
Revenues totaled $6.5 billion, up slightly from $6.4 billion a year ago when Intel earned $1.9 billion, or $1.06 a share.
Intel (INTC) shares reacted positively immediately following the announcement, climbing in after-hours trading to 77-5/8, up from the close of 76-15/16. However, shares later retreated to the closing level.
For the year, Intel earned $6.9 billion, or $3.87 a share, on revenues of $25.1 billion, an increase of more than $1.5 billion from the $5.2 billion, or $2.90 a share, profit reported in 1996. Intel's 1997 income also beat Wall Street expectations of $3.79 a share.
Despite the somewhat rosy numbers reported Tuesday, Intel warned investors it expects virtually no increase in revenues in the first quarter of 1998 due to lower margins on its flagship processor lines.
The company also said gross margins - the difference between the product's sale price and its manufacturing cost - is expected to decline slightly in the first quarter due as the company cuts prices on its Pentium II processors.
Intel said it expects gross margins to fall "a few points" from the fourth quarter's level of 59 percent to about 55 percent in 1998.
Intel Chairman Andrew Grove said increased production and new MMX-enabled Pentium and Pentium II processors are paving the way for what is essentially an entirely new product line.
"New market segments, from the basic PC to high-performance workstations and servers, offer growth opportunities for Intel," Grove said.
In a conference call with reporters, Paul Otellini, Intel's executive vice president of sales and marketing, said more than 90 percent of the processors shipped in the quarter included MMX technology. He said Pentium II shipments were also on target.
"This represents the fastest conversion to new technology in our history. We met our goal of having approximately 25 percent of our production [to be Pentium II chips] and are on track to reach 50 percent by mid-1998.
"The Pentium II has ramped more quickly than any product and is seeing rapid acceptance by businesses and consumers," he said.
The company also said it expects to market a version of the Pentium II designed for the sub-$1,000 PC market by the second half of 1998.
Intel said weakening business in Southeast Asia and Korea has been partially offset by growth in China.
The company also projects it will spend $5.3 billion in 1998 on capital projects which include the purchase of Digital Equipment Corp.'s semiconductor manufacturing operations announced late last year.
Earlier in the day, Intel said it would proceed with its $420 million acquisition of Chips & Technologies after the Federal Trade Commission said it was calling off efforts to delay the deal.
Separately, Advanced Micro Devices (AMD) reported a smaller-than-expected fourth quarter loss of $12.4 million, or 9 cents a share, on sales of $613 million. Wall Street had expected AMD to post a loss of 14 cents a share in the quarter. A year ago AMD lost $21.2 million, or 15 cents a share.
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