Third Quarter Revenue a Record $8.7 Billion, Up 19 Percent
SANTA CLARA, Calif.--(BUSINESS WIRE)--Oct. 17, 2000--Intel Corp. (Nasdaq:INTC - news):
Third Quarter Earnings Excluding Acquisition-Related Costs(a)
$0.41 Per Share; Third Quarter Earnings Per Share $0.36
Intel Investor Relations Web site: www.intc.com
Q3 earnings announcement call live on Web site at 2:30 p.m. PDT
Conference call replay number 719/457-0820; access No. 470312
Replay available shortly after end of conference call through Oct. 24
Intel Corporation today announced third quarter revenue of $8.7 billion, a quarterly record, up 19 percent from the third quarter of 1999 and up 5 percent sequentially.
For the third quarter, net income excluding acquisition-related costs was $2.9 billion, up 52 percent from the third quarter of 1999 and down 18 percent sequentially. Third quarter earnings excluding acquisition-related costs were $0.41 per share, an increase of 52 percent from $0.27 in the third quarter of 1999, and down 18 percent sequentially. All second quarter net income and earnings per share amounts include the previously reported charge to cost of sales for approximately $200 million to cover costs associated with the MTH motherboard replacement program and $2.3 billion of interest and other income.
Including acquisition-related costs in accordance with generally accepted accounting principles, third quarter net income was $2.5 billion, up 72 percent from the third quarter of 1999 and down 20 percent sequentially. Earnings per share were $0.36, up 71 percent from $0.21 in the third quarter of 1999 and down 20 percent sequentially.
Acquisition-related costs in the third quarter consisted of $8 million in one-time charges for purchased in-process research and development and $420 million of amortization of goodwill and other acquisition-related intangibles and costs.
``We achieved record revenue with 19 percent growth in the third quarter. It was a challenging quarter primarily because PC demand in Europe was not as strong as we expected entering the period,'' said Craig R. Barrett, president and chief executive officer.
``Looking ahead, we anticipate record revenue in the fourth quarter, with growth across most of our product lines,'' added Barrett. ``We are especially pleased with the rapid growth in our server business, our record flash business, and our networking silicon business which surpassed our expectations in the third quarter. We are also excited by the industry enthusiasm for the new low power mobile Pentium® III processors announced last month, the Pentium® 4 processor launching this quarter, the Itanium(TM) processor now shipping for pilot systems, and our recently introduced Intel® XScale(TM) microarchitecture.''
During the quarter, the company announced the acquisition of Ziatech Corporation, and announced and closed the acquisitions of Trillium Digital Systems, Inc. and DataKinetics Ltd. Background on each of these acquisitions can be found in the Third Quarter Highlights section of this release.
In September, the company said it had been notified that the investigation by the Federal Trade Commission into Intel's business practices has been closed. The investigation began in September 1997 and covered all aspects of Intel's business. The FTC also closed its investigation of whether Intel's acquisition of Chips and Technologies Inc. and equity in Real3D had any anti-competitive effect on any markets for graphics components or other computer hardware.
During the quarter, the company paid its quarterly cash dividend of $0.02 per share. The dividend was paid on Sept. 1, 2000, to stockholders of record on Aug. 7, 2000. Intel has paid a regular quarterly cash dividend for eight years.
During the quarter, the company repurchased a total of 14.3 million shares of common stock at a cost of $1.0 billion, under an ongoing program. Since the program began in 1990, the company has repurchased 1.4 billion shares at a total cost of $21.2 billion.
(a) Acquisition-related costs consist of one-time write-offs of
purchased in-process research and development and the ongoing
amortization of goodwill and other acquisition-related intangibles
and costs. Intangibles include, for example, the value of the
acquired companies' developed technology, trademarks and
workforce-in-place. Earnings excluding acquisition-related costs
differ from earnings presented according to generally accepted
accounting principles because they exclude these costs.
BUSINESS OUTLOOK
The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. These statements do not include the potential impact of any mergers, acquisitions or other business combinations that may be completed after Sept. 30, 2000.
The company expects revenue for the fourth quarter of 2000 to be up 4 to 8 percent from third quarter revenue of $8.7 billion.
The company expects gross margin percentage for the fourth quarter to be approximately 63 percent plus or minus a point, versus 64 percent in the third quarter, primarily due to start-up costs on upcoming 0.18-micron fabs. In the short term, Intel's gross margin percentage varies with revenue levels, product mix, changes in unit costs and timing of factory ramps and associated costs.
Expenses (R&D, excluding in-process R&D, plus MG&A) in the fourth quarter of 2000 are expected to be up 6 to 8 percent from third quarter expenses of $2.3 billion, primarily due to seasonally higher spending on marketing programs and higher revenue dependent expenses. Expenses are dependent in part on the level of revenue.
R&D spending, excluding in-process R&D, is expected to be approximately $1.0 billion in the fourth quarter.
The company expects gains on investments and interest and other income for the fourth quarter of 2000 to be approximately $950 million, depending on interest rates, cash balances, equity market levels and volatility, the realization of expected gains on investments, including gains on investments acquired by third parties, and assuming no unanticipated items.
The tax rate for 2000 is expected to be approximately 31.8 percent, excluding the impact of the previously announced agreement with the Internal Revenue Service and acquisition-related costs.
Capital spending for 2000 is expected to be approximately $6.0 billion.
Depreciation is expected to be approximately $865 million in the fourth quarter.
Amortization of goodwill and other acquisition-related intangibles and costs is expected to be approximately $440 million in the fourth quarter.
The statements by Craig R. Barrett and the above statements contained in this outlook are forward-looking statements that involve a number of risks and uncertainties. In addition to factors discussed above, among other factors that could cause actual results to differ materially are the following: business and economic conditions and growth in the computing industry in various geographic regions; changes in customer order patterns; changes in the mixes of microprocessor types and speeds, purchased components and other products; competitive factors, such as rival chip architectures and manufacturing technologies, competing software-compatible microprocessors and acceptance of new products in specific market segments; pricing pressures; development and timing of introduction of compelling software applications; insufficient, excess or obsolete inventory and variations in inventory valuation; continued success in technological advances, including development and implementation of new processes and strategic products for specific market segments; execution of the manufacturing ramp, including the transition to the 0.18-micron process technology; shortage of manufacturing capacity; the ability to grow new networking, communications, wireless and other Internet-related businesses and successfully integrate and operate any acquired businesses; unanticipated costs or other adverse effects associated with processors and other products containing errata (deviations from published specifications); litigation involving antitrust, intellectual property, consumer and other issues; and other risk factors listed from time to time in the company's SEC reports, including but not limited to the report on Form 10-Q for the quarter ended July 1, 2000 (Part I, Item 2, Outlook section).
Intel Revises Its Outlook Publication Procedures
In connection with the recent adoption of new SEC rules on corporate disclosure, Intel is changing its procedures for publishing and updating its Outlook forward-looking statements and risk factors statements. Following the publication of Outlook in its quarterly Earnings Release, Intel will continue its current practice of having corporate representatives meet privately during the quarter with investors, the media, investment analysts and others. At these meetings Intel may reiterate the Outlook published in the Earnings Release. At the same time, Intel will keep its Earnings Release and Outlook publicly available on its Web site (www.intc.com). Prior to the start of the Quiet Period (described below), the public can continue to rely on the Outlook on the Web site as still being Intel's current expectations on matters covered, unless Intel publishes a notice stating otherwise.
Towards the end of each fiscal quarter, Intel will have a ``Quiet Period'' when it no longer publishes, or updates, Outlook as its current expectations and Intel representatives will not comment concerning Outlook or Intel's financial results or expectations. The Quiet Period will extend until the day when Intel's next quarterly Earnings Release is published. For the fourth quarter, the Quiet Period will be Dec. 16, 2000 through Jan. 16, 2001.
THIRD QUARTER 2000 BUSINESS REVIEW
Intel Architecture Group
Microprocessor unit shipments were approximately flat with the second quarter.
Chipset unit shipments were higher than the second quarter.
Motherboard unit shipments set a record.
Wireless Communications and Computing Group
Flash memory unit shipments set a record.
Network Communications Group
Unit shipments of Fast Ethernet and Gigabit Ethernet connections set a record.
Unit shipments of network infrastructure silicon components, which include embedded Pentium® III processors, I/O processors and PCI bridges, set a record.
Unit shipments of microcontrollers were higher than the second quarter.
Communications Products Group
Unit shipments of switches were higher than the second quarter.
Unit shipments of computer telephony boards were lower than the second quarter.
Financial Review
Average selling prices of microprocessors in the third quarter were approximately flat with the second quarter.
Gross margin percentage in the third quarter was 64 percent, higher than revised expectations of 62 percent plus or minus a point, primarily due to lower than expected material costs and timing of start-up costs for 0.18-micron fabs.
Expenses (R&D, excluding in-process R&D, plus MG&A) in the third quarter were up 5 percent from the second quarter, lower than previous expectations of up 7 to 9 percent because of lower merchandising expenses and tighter control in discretionary spending areas.
Gains on investments and interest and other were $966 million in the third quarter, higher than revised expectations of $900 million, due to higher than expected realized gains on equity investments.
The effective tax rate was approximately 31.8 percent in the third quarter, excluding the impact of acquisition-related costs.
THIRD QUARTER AND RECENT HIGHLIGHTS
Intel Architecture Group
In August, Intel disclosed details behind its new Intel® NetBurst(TM) chip architecture, the name for the key technical features contained in the upcoming Intel® Pentium(TM) 4 processor. The Pentium 4 processor has been designed with specific attention focused on the Internet, imaging, streaming video, speech processing, 3-D, multimedia and multi-tasking.
In August, Intel shared details of its Intel Solution Center and Intel Developer Services programs -- part of a $100 million effort announced earlier this year to accelerate integration and deployment of Intel Architecture-based e-Business solutions.
In August, the company introduced the industry's first gigahertz processor for servers and high-end workstations. Original equipment manufacturers (OEMs) began offering systems featuring the gigahertz Intel® Pentium® III Xeon(TM) processor in the third quarter, targeting the rapidly growing high-end workstation and ``front-end'' server segments.
In September, Intel introduced new mobile Pentium III processors with SpeedStep(TM) technology that bring higher performance and optimum battery life to mobile PCs. The new processors operate at speeds up to 850 MHz, and with SpeedStep technology can automatically drop power consumption down to 1.35 volts.
On Oct. 11 and 12, Intel hosted the eXCHANGE e-Business summit which emphasized the momentum behind Intel-based solutions and the importance of a worldwide e-Business ecosystem to support today's growing Internet economy. At the event, Intel said it is placing the final touches on its Itanium(TM) processor family and expects initial Itanium processor-based pilots to be shipping this quarter. More than 400 applications are currently being developed, and Intel has shipped more than 6,500 prototype systems and almost 32,000 processors since last November.
Wireless Communications and Computing Group
In August, the company introduced the Intel® XScale(TM) microarchitecture, a new chip architecture designed to benefit a wide variety of wireless Internet and networking infrastructure applications. Building on Intel StrongARM(b) technology, the XScale design will offer low power operation (as low as 1/10,000 watt) and fast clock speeds (approaching 1 GHz, or one billion cycles per second).
In August, the company announced its newest version of Flash Data Integrator Software, Intel® FDI 3.0. The software helps designers enable handheld devices to handle the complex features and demands of Internet data storage. Intel® FDI 3.0 enables developers to accommodate data intensive wireless applications such as the storage of Java applets, files transferred over Bluetooth(TM), microbrowser cache and voice recognition tags.
In September, Intel introduced a new ``platform'' architecture designed to accelerate the development of next-generation Internet applications for wireless devices. The Intel Personal Internet Client architecture is a blueprint which defines specifications for building new wireless client solutions capable of processing advanced Internet applications such as those envisioned for Internet-ready cell phones and other wireless handheld devices.
Network Communications Group
In July, the company announced a development center in Beijing, the People's Republic of China, to accelerate the development of networking and telecommunications solutions using the Intel® Internet Exchange(TM) architecture.
In August, the company introduced a complete family of ``Carrier Class'' Ethernet transceivers, including Gigabit Ethernet, Fast Ethernet, and Ethernet transceivers, capable of operating under the harsh conditions of existing telecommunications networks.
In August, the company unveiled the Intel® Media Switch Family products, which provide true voice, video and data integration over corporate networks. The Intel Media Switch Family enables advanced applications, such as voice over IP (VoIP), distance learning, streaming video, teleconferencing and corporate network videoconferencing.
In August, the company introduced the Intel® GigaBlade(TM) OC-48 multi-transport optical network access engine. This new device is designed to provide greater intelligence about the type of traffic that flows over an optical network so the service provider that owns that network can provide enhanced services to its customers.
During the quarter, the company announced and closed the acquisition of privately held Trillium Digital Systems, Inc. in a transaction valued at approximately $300 million in cash and unregistered Intel common stock. This acquisition will complement NCG's world-class communication silicon business with the communications software products, support and services necessary to accelerate Intel's ability to offer its networking and telecommunications customers a more complete platform-level solution.
Communications Products Group
During the quarter, the company announced and closed the acquisition of privately held DataKinetics Ltd. in a cash transaction. Specific financial terms of the agreement were not disclosed. DataKinetics is a supplier of a complete family of Signaling System 7 (SS7) hardware and software products. SS7 protocols serve as the basis for controlling telephone networks and are used to provide advanced functions such as wireless Internet capability and the ability to link Internet Protocol (IP) and telephone networks.
In July, the company announced it had entered into a definitive agreement to acquire privately held Ziatech Corporation in a cash transaction valued at approximately $240 million. Ziatech designs and markets a full range of Intel® Architecture-based circuit boards, hardware platforms and development systems. Ziatech products are primarily sold to telecommunication equipment manufacturers who require flexible and highly reliable equipment for their communications products.
In September, the company announced a new family of high-performance virtual private networking (VPN) products that securely connect remote users to branch offices and business partners over the Internet while helping to save on traditional private leased line and long-distance dial-up charges.
In September, the company introduced three new categories of e-Business data center appliances that support e-Commerce growth and the trend of outsourcing a company's IT services. The hosting, storefront and management products are part of the growing Intel® NetStructure(TM) family.
In September, the company announced key new technology building blocks for accessing Web sites using speech commands. The new products comprise a voice portal capability which provides the first standardized platform for speech enabled application development in the Internet-based voice services.
New Business Group |
