Sales Flat, But Intel Upbeat

By Michael Singer

July 15, 2003

UPDATE: The company's Q2 earnings still show a strong demand overseas as the chipmaking giant puts stock in its Pentium, Itanium and Centrino product lines.

Intel Tuesday said sales of its microprocessor products were relatively flat in the last three months, but that is still cause for celebration.

For its second quarter of 2003, the Santa Clara, Calif.-based company said it has doubled its second-quarter net income to 14 cents a share and increased its revenue 7.9 percent to $6.8 billion from the same quarter last year.

Breaking down by specific groups, Intel said while its Intel Architecture (IA) division was the main reason for its overall success, microprocessor units and average selling prices were approximately flat. The company also said sales of its chipset units were flat; motherboard units were higher; flash memory units were lower; and Ethernet connectivity product units were slightly higher.

Regionally, the company said the majority of its growth came from its business in Asia.

"Overall, the quarter came in slightly better than we expected led by good demand in our computing-related business, which posted solid year-over-year results," Intel CEO Craig Barrett said in a statement. "We continued to see strength in emerging markets, and our Asia-Pacific region set an all-time revenue record.

The company said the region 40 percent growth for the first time with China seeing single digit growth, Taiwan driven by chipsets and success in Japanese markets driven by notebook sales and camera phones.

At its mid-quarter update, Intel forecasted second quarter revenues between $6.4 and $7.0 billon with gross margins of about 50 percent. A sampling of Thomas/First Call analysts expected the chipmaking giant to post earnings of 13-cents per share.

The company also said its revenue in the third quarter is expected to be between $6.9 billion and $7.5 billion with gross margins hitting approximately 54 percent.

Barrett was also optimistic about his company's three-year R&D investments.

"We saw excellent market acceptance for new, more powerful versions of the Pentium 4 processor for desktops and for Intel Centrino mobile technology for notebooks. In addition, we recently launched our latest Itanium 2 processor for high-end enterprise computing with broad industry support. On a day when Intel celebrates its 35th anniversary, our continued focus on product and technology leadership remains the right strategy for long-term success," Barrett said.

Intel president and chief operating officer Paul Otellini said the company will soon transfer its $4.2 billion in R&D funds to developing chips using the 65-nanometer (nm) process, now that 90nm chips are in the pipeline. Otellini confirmed the company is currently testing 90-nanometer Dothan (wireless) and Prescott (PC) chips and expects to ship both chips by the end of the year. Chips produced at the 65nm level are expected to appear in 2005.

Intel also said it will revive its Home PC program for employees after suspending the practice due to budgetary concerns. The program supplies each worker with one Intel-based PC for personal use. The company said the program should be finished by the end of the year. In all, Intel supports 78,700 employees and is operating in more than 40 countries.

Intel's other celebration centered on its 35th anniversary party. The company kicked off the first of several worldwide events at its headquarters. Company founder Gordon Moore and chairman Andy Grove were on hand to put some of its products in a "time capsule." The container holds items submitted from Intel sites from around the world, including a 300-millimeter wafer from Oregon, a microprocessor package from China, and a newspaper from Costa Rica. The time capsule also holds a wooden box carved from an olive tree comes from Israel -- home to one of the principal design centers for Intel Centrino mobile technology -- and contains a metallic dove, symbolizing Israel's hope for a future of peace. The time capsule will be opened in 2018 to mark Intel's 50th anniversary.

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