The Wall Street Journal-20080116-Intel-s Profit Surges 51-- But Outlook Is Cautious
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Intel's Profit Surges 51%, But Outlook Is Cautious
Intel Corp. posted a 51% surge in fourth-quarter profit but sounded a cautious note about business conditions in the first quarter and the rest of the year.
The forecast by the giant chip maker, whose results are seen as a gauge for global technology demand, sent its shares down more than 14% in after-hours trading.
Intel, of Santa Clara, Calif., has rebuilt its competitive position after temporarily falling behind rival Advanced Micro Devices Inc. While Intel has been meeting or exceeding most of its technical milestones, AMD has been struggling to deliver a long-awaited line of microprocessor chips.
With demand solid and improvements in production costs, Intel said its closely watched gross profit margin was 58% in the fourth quarter, above its prediction in October of 57%, plus or minus a couple of percentage points. But Intel's revenue -- which rose 10.5% -- was a bit less than analysts expected, as compiled by Thomson Financial, as were its earnings per share.
For the first quarter, the company forecast a range of revenue with a midpoint that was below the average analyst estimate. Intel estimated its gross profit margin in the current quarter at 56%, plus or minus a couple of percentage points. For the year, the company put the percentage at 57%, plus or minus a few percentage points, dashing any hope that it would soon return to historic peaks of greater than 60%.
Stacy Smith, Intel's vice president and chief financial officer, stressed in an interview that the company hasn't experienced any significant weakening of its business. But with the widely reported jitters about economic conditions, mainly in the U.S., the company is watching out for signs of a slowdown.
John Lau, an analyst at Jefferies & Co., noted that Intel's first- quarter forecast points to a 10% decline in revenue compared with the fourth period, where revenue typically falls 7% to 9% because of seasonal factors. "It certainly doesn't give us a good feeling that it would be better-than-normal seasonality," he said.
Other in the semiconductor market have also had problems. In other developments yesterday, Samsung Electronics Co., the second-largest chip maker, reported a 7% decline in fourth-quarter profit. Applied Materials Inc., the big Silicon Valley maker of tools for building chips, said it would cut about 1,000 jobs, or 7% of it work force.
Intel's stock, which rose sharply in 2007 as the company's competitive position improved, had declined 13% so far this year amid fears its business would start to deteriorate. The stock stood yesterday at $22.69, off 39 cents, at 4 p.m. in Nasdaq Stock Market trading. After the announcements, the stock traded at $19.45.
Paul Otellini, Intel's chief executive, told analysts during a conference call that he was pleased with the company's performance. The company has benefited, in part, from a shift to laptop computers, whose chips command higher prices.
The company reported net income of $2.27 billion, or 38 cents a share, for the quarter, compared with $1.5 billion, or 26 cents a share, a year earlier. The company's latest results included 2.5 cents a share in restructuring and asset impairment charges. Results in the year-ago period included restructuring and asset-impairment charges and a divestiture gain that resulted in a net increase of one cent a share. Revenue in the latest quarter rose to $10.71 billion from $9.69 billion.
Analysts polled by Thomson Financial had expected Intel to post earnings of 40 cents a share on revenue of $10.84 billion.
