AMD to sell MORE mpu at BETTER price thanks to Intel.
That message is clear and loud from Intel Q1 report and CC. Let's see how likes of Edelstone and Kumar spin Intel story against AMD.
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Questions surround Intel earnings, future
By Michael Kanellos
Staff Writer, CNET News.com
April 18, 2000, 6:15 p.m. PT
URL: news.cnet.com
update Intel today reported first-quarter earnings that beat analysts' estimates, but the next three
months will be a tough time for the leading chipmaker.
The Santa Clara, Calif.-based company reported earnings of 71 cents a share, excluding several
extraordinary events, coming in 2 cents above First Call's consensus analyst estimate. The figure is 32
percent better the 57 cents per share reported in the first quarter of last year. Revenue came to $8
billion, 13 percent higher than sales in the first quarter of 1999.
But company executives were far from upbeat. Intel said it underestimated PC and mobile phone
demand for the first half of the year. As a result, it does not have the manufacturing capacity and other
resources it needs to meet demand, and for the next three months, supplies will be constrained. Some
analysts already are downgrading second-quarter expectations.
"We did not anticipate the level of demand for the first half, especially for microprocessors, chipsets and
flash memory," said Andy Bryant, Intel's chief financial officer. "Supply will continue to be a challenge."
Besides that admission, Intel's first-quarter numbers themselves may be a source of debate in the
financial community.
Overall, the company reported earnings of $3 billion, or 88 cents a share. But the figure included a
recently unveiled tax settlement with the Internal Revenue Service that raised earnings for the quarter by
$600 million, or 17 cents a share, and ignored acquisition-related costs of 10 cents a share.
Excluding these events, earnings came to 71 cents a share.
The earnings figure also includes $640 million from interest and investment activities, which is more than
the $500 million Intel earlier told analysts to expect. Those activities added "a few cents" to the final
earnings-per-share figure, an Intel representative said.
Last quarter, analysts split over whether the company beat estimates or simply grazed by with a boost
from its investment activities. Excluding acquisition costs, Intel reported fourth-quarter earnings of 69
cents per share on revenues of $8.2 billion. Investment activities accounted for an additional 5 cents a
share.
Analyst A.A. Tad LaFountain III at Needham & Co. stated in an email that one could argue that Intel beat
the estimates because of unanticipated gains.
Investment income is likely to rise to $725 million in the second quarter, Intel's Bryant said. Other
companies, including rival Advance Micro Devices, have seen increases in investment income as well.
More interesting to LaFountain, though, was the relatively anemic growth in microprocessor revenues
and Intel's manufacturing constraints. The Intel Architecture Business Group, which makes PC
components, saw revenues increase 3 percent, from $6.4 billion to $6.6 billion, from the first quarter last
year. Profits for the same period for this division grew 7 percent, from $2.9 billion to $3.1 billion.
"I am perplexed how a leading supplier with a dominant market share sitting on $20 billion...and
marketable investments could fail to invest enough to provide adequate supply to meet what has to be
viewed as very modest demand growth," LaFountain wrote.
By contrast, Ashok Kumar, an analyst with US Bancorp, stated that microprocessor revenues will
recover in the second half. Intel's problem lay more with its communications activities. Revenues from
Level One, acquired for roughly $4 billion last year, appear to be in decline.
"Level One hasn't contributed to the bottom line," Kumar said. "The company continues to rely on
microprocessors, which is concerning."
Although chip supplies will be tight in the second half, Intel is putting in manufacturing to ensure against
more shortages in the latter half of the year, when demand picks up again.
"We will have enough output to meet demand for the second half," said Paul Otellini, general manager of
the Intel Architecture Business Group. The company also will sign on more suppliers for chip packaging,
which has been a problem this year.
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