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Intel issues bright outlook
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September 10, 1998: 6:56 p.m. ET
8-10% gains seen putting consensus forecast up to 80 cents, analysts say
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NEW YORK (CNNfn) - Intel Corp. surprised Wall Street Thursday by telling investors third quarter revenues will be better than expected, reflecting stronger than anticipated demand in North America and Europe.
In a statement issued after trading in New York had closed, the chip giant said third quarter revenues are expected to be 8 to 10 percent above the $5.9 billion reported in the second quarter of 1998, which would translate into sales of between $6.4 billion and $6.5 billion.
"This increase in demand is broad based. It's across products and geographies, particularly North America and Europe... It's a combination of customers replenishing inventories and better-than-expected (sales)," Intel spokesman Tom Waldrop told Reuters.
For the 1997 third quarter, Intel reported net income of $1.57 billion, or 88 cents a share, on revenue of $6.2 billion.
Previously, Intel had projected flat to slightly higher sequential revenue growth.
News of the revised forecast sent Intel shares soaring in after-hours trade to 83-7/8, up from the earlier New York close of 79-1/16. Analysts said the news could provide a lift to battered technology stocks on Friday.
The anticipation of higher earnings is even more critical given that September is a key month in the third quarter, analysts said.
"To paraphrase Greenspan, (Intel is) a beacon of light. We think Intel is in an oasis of prosperity in this world of distress," Ashok Kumar, technology analyst at Pipar Jaffray told Reuters.
With gross margins still projected "a couple of points" above the 49 percent reported in the second quarter, that would put the third-quarter profits at nearly 80 cents a share, analysts said.
Analysts had a consensus earnings forecast of 73 cents, according to First Call.
"Business conditions especially in the PC supplier area were picking up in August," said Dan Scovel, analyst at Fahnestock.
Included in the expectation for gross margin in the third quarter of 1998 are write-offs associated with facilities realignment to improve manufacturing efficiencies, and the previously announced headcount reduction program. For all of 1998, Intel's (INTC) gross margin expectation is 52 percent, plus or minus a few points.
The company further said it believes that over the long-term, the gross margin percentage will be 50 percent plus or minus a few points.
Expenses in the third quarter of 1998 are expected to be about 7 to 8 percent higher than second quarter expenses of $1.3 billion, up from earlier guidance of 3 to 5 percent higher than second quarter expenses.
Research and development spending is expected to be approximately $2.8 billion for 1998, including the approximately $165 million for in-process R&D associated with the acquisition of Chips and Technologies, Inc. in the first quarter.
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Intel
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