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Intel posts strong profit
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January 12, 1999: 6:51 p.m. ET
Chip maker's earnings of $1.19 per share beat Wall Street estimates
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NEW YORK (CNNfn) - Intel Corp. posted stellar fourth-quarter earnings Tuesday, reflecting record chip sales and solid demand from personal computer makers.
The Santa Clara, Calif.-based chip maker earned $2.1 billion, or $1.19 per share, in the three months ended December 26, compared to $1.74 billion, or 98 cents per diluted share, for the same period last year. Analysts surveyed by First Call had forecast earnings of $1.07 per share.
Sales rose 17 percent to $7.6 billion from last year's $6.5 billion.
Investors cheered the earnings news, with Intel (INTC) stock climbing to 139 in after-hours trading, after closing down 4-1/16 at 135-11/16 on the Nasdaq.
Intel issues revenue warning
Intel said it expects revenue for the first quarter of 1999 to be down from fourth quarter revenue of $7.6 billion due to seasonal factors. In the first quarter of 1998, the semiconductor firm earned $1.27 billion, or 72 cents per diluted share, on revenues of $6 billion.
Gross margin percentage in the first quarter of 1999 is expected to be "down slightly" from 58 percent in the fourth quarter, the company said adding Intel's gross margin expectation for all of 1999 is 57 percent, "plus or minus a few points," compared to 54 percent for all of 1998.
Analysts said Intel's stronger-than-expected performance shows demand for personal computers remained strong in the all-important holiday season.
"I think the dominant theme is the extraordinary strength in the PC market and obviously the microprocessor market in the fourth quarter," Charles Boucher, industry analyst with Donaldson, Lufkin, Jenrette, said. "The fact that (Intel) will be down slightly in the first quarter I think will be discounted because Intel has historically been conservative looking forward."
For the year, profits totaled $6.1 billion, or $3.45 per share, down from last year's $6.9 billion, or $3.87 per share. Wall Street had anticipated annual per-share earnings of $3.43. Sales jumped to $26.3 billion from $25.1 billion in 1997.
The company cited record revenue in the Americas, Europe and Asia and said investments in new product development and productivity improvement bolstered its position in the industry. In a conference call, the company said it expects costs per unit to continue to drop throughout 1999.
Capital spending for 1999 is expected to be about $3 billion, down from $4 billion in 1998, because of reduced investment for new facilities and better use of manufacturing equipment.
Despite Intel's solid performance, Boucher said he does not expect the company's stock to go through the roof on Wednesday.
"I think it has had an excellent run and I don't expect to see the stock to move up too much off of this report. I do think the stock is going to tend to trade flat for a few months until we get a better sense of what's going to happen later in 1999," the analyst said, adding that he considers both Intel and competitor Advanced Micro Devices Inc. (AMD) good long-term buys.
However, he said related stocks may get a boost from the favorable earnings report with shares of major PC companies, such as Compaq Computer Corp. (CPQ), Dell Computer Corp. (DELL) and Gateway 2000 Inc. (GTW), expected to climb on Tuesday's news.
Although Boucher expressed concern over the planned decrease in 1999 capital spending, he admitted Intel has a strategy in place that allows it to spend less money. He praised Intel's plans for new products, new pricing and aggressive new technology.
"In the semiconductor industry, fundamentals have clearly turned," Boucher added. "We saw a bottom in the third quarter and we saw a very nice recovery extend through the end of the year and it's beginning to extend into1999. That's really the best you can hope for." 
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Intel
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