Intel's 1997 Revenue and Earnings Set New Records
1997 Revenue up 20% to $25.1 Billion; 1997 EPS $3.87, up 33%; Record Quarterly Revenue
SANTA CLARA, Calif., Jan. 13, 1998 - Driven by the rapid market acceptance of the Pentiumr II processor and the Pentiumr processor with MMXT technology, both of which were introduced in 1997, Intel's 1997 revenues and earnings per share set new records, the company said today. 1997 was the eighth consecutive year of both record revenue and earnings for Intel.
Revenue totaled $25.1 billion in 1997, up from $20.8 billion in 1996. Net income was $6.9 billion or $3.87 per share, up from $5.2 billion or $2.90 per share in 1996.
Fourth quarter revenue of $6.5 billion set a record, and was up from $6.4 billion for the fourth quarter of 1996. Net income was $1.7 billion for the fourth quarter, down from $1.9 billion for the comparable period a year ago. Earnings per share in the fourth quarter were $0.98, down from $1.06 in the final quarter of 1996.
"In 1997 our factories ramped new processing and packaging technologies at an unprecedented rate," said Dr. Andrew S. Grove, chairman and chief executive officer. "We introduced two major new microprocessors, the Pentium processor with MMX technology and the Pentium II processor, essentially replacing our previous product line."
"New market segments, from the basic PC to high performance workstations and servers, offer growth opportunities for Intel. In November, we announced a realignment of our product strategies and management to embrace all segments, positioning Intel to excel in a worldwide computing industry that continues to evolve and expand."
In the fourth quarter, the company repurchased a total of 12.7 million shares of common stock at a cost of $1.0 billion under an ongoing program. For the full year the company repurchased 43.6 million shares at a cost of $3.4 billion. Since the program began in 1990, the company has repurchased 213.4 million shares at a total cost of $6.9 billion.
During the quarter, the company announced its regular quarterly cash dividend of $0.03 per share. The dividend is payable on March 1, 1998 to stockholders of record on February 1, 1998. Intel has paid a quarterly dividend for over five years.
Intel's 1998 Step-Up Warrants (INTCW) expire on March 14, 1998. The warrants must be exercised on or before Friday, March 13, 1998. The last day of trading of the warrants on The Nasdaq Stock Market will be March 10, 1998.
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 reflect the potential impact of any mergers or acquisitions that may be completed after the date of this release, except as noted below.
The company expects revenue for the first quarter of 1998 to be approximately flat with fourth quarter revenue of $6.5 billion.
Gross margin percentage in the first quarter of 1998 is expected to be down a few points from 59 percent in the fourth quarter, primarily the result of purchased components used on the SEC cartridge for the Pentium II processor. Intel's gross margin expectation for 1998 is 55 percent, plus or minus a few points. In the short-term, Intel's gross margin percentage varies primarily with revenue levels and product mix.
The company still believes that over the long-term, the gross margin percentage will be 50 percent plus or minus a few points. Intel's long-term gross margin percentage will vary depending on product mix.
Expenses (R& D plus MG &A) in the first quarter of 1998 are expected to be approximately 2 to 5 percent lower than the expenses of $1.4 billion in the fourth quarter, primarily because of seasonally lower marketing and advertising expenses. Expenses are dependent in part on the level of revenue.
R & D spending is expected to be approximately $2.8 billion for 1998, up from $2.3 billion in 1997.
The company expects interest and other income for the first quarter of 1998 to be approximately $175 million assuming no significant changes in cash balances, or interest rates, and no unanticipated items.
The tax rate in 1998 is expected to be 34.0 percent.
Capital spending for 1998 is expected to be approximately $5.3 billion, up from $4.5 billion in 1997.
Depreciation is expected to be approximately $2.7 billion for 1998, up from $2.2 billion in 1997. Depreciation in the first quarter of 1998 is expected to be approximately $580 million.
The FTC announced on January 13 that it would not seek to enjoin Intel's proposed acquisition of Chips and Technologies, Inc. If completed, the acquisition is expected to result in a one-time charge to Intel's earnings. The amount of the charge has not yet been determined.
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, including changes in customer and channel inventory levels and in seasonal PC buying patterns; changes in the mixes of microprocessor types and speeds, motherboards, 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; changes in end users' preferences; risk of inventory obsolescence and variations in inventory valuation; excess of purchased components; timing of software industry product introductions; continued success in technological advances, including development, implementation and initial production of new strategic products and processes in a cost-effective manner; execution of the manufacturing ramp; excess or shortage of manufacturing capacity; the ability to successfully integrate any acquired businesses, enter new market segments and manage the growth of such businesses; unanticipated costs or other adverse effects associated with processors and other products containing errata (deviations from published specifications); risks associated with foreign operations; litigation involving intellectual property and consumer 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 September 27, 1997 (Part I, Item 2, Outlook section).
Q4 1997 BUSINESS REVIEW
Unit shipments of microprocessors set a record in the fourth quarter. Chipset units were down in the fourth quarter from the third quarter of 1997.
Motherboard units shipped in the fourth quarter were up from the third quarter, the result of higher motherboard unit shipments for the Pentium II processor.
Embedded processor and microcontroller units shipped were flat with the third quarter.
Flash memory units shipped during the quarter were up from the third quarter.
Unit shipments of Fast Ethernet connections and switches were up from the third quarter, unit shipments of hubs were down from the third quarter.
Gross margin percentage was 59%, up slightly from 58% in Q3, the result of higher revenue and a stabilizing Flash memory business, partially offset by the impact of purchased components used on the SEC cartridge for the Pentium II processor.
Intel's revenue breakdown by major geographic regions is summarized below:
Percent of revenue by geographic area Q4 96 Q3 97 Q4 97
Americas 42 48 45
Europe 28 24 30
Asia-Pacific 20 19 17
Japan 10 9 8
Q4 revenues were up significantly in Europe from Q3, the result of seasonally strong demand there. Q4 revenues in the Americas were flat with Q3, revenues in both Asia-Pacific and Japan were down. Percent of revenue by geographic area Year Ended 12/30/95 Year Ended 12/28/96 Year Ended 12/27/97
Americas 49 42 44
Europe 28 28 27
Asia-Pacific 12 18 19
Japan 11 12 10
Employment at the end of the 1997 was 64,000, up from 48,500 at the end of 1996.
PRODUCT HIGHLIGHTS
Processor & Platform Products
During the quarter, Intel announced that the first member of its new family of IA-64 microprocessors, code named MercedT, is scheduled for production in 1999. The Merced processor will extend the Intel Architecture with new levels of performance and features for servers and workstations. Merced will use Explicitly Parallel Instruction Computing (EPIC) technology, which was jointly defined by Intel and Hewlett-Packard Company.
Intel and Sun Microsystems, Inc. announced that they are cooperating to optimize Sun's Solaris* operating environment for Intel's future Merced microprocessor. Sun plans on delivering a 64-bit optimized version of the Solaris software for Merced at the time of Merced-based system availability in 1999.
During the quarter, Intel acquired Corollary Inc., a privately held supplier of multiprocessing technology based on Intel Architecture. The acquisition is aimed at accelerating the availability of high-performance, eight-way server solutions based on the Intel Architecture.
Intel announced that it is developing design guidelines for a lean client and an optimized network server that support a variety of operating environments. An initial opportunity for lean clients is expected to be the terminal replacement market segment for "task-oriented" users such as bank tellers, loan operators and purchasing agents.
Networking & Communications Products
During the quarter, Intel introduced the Intel Express 510T Switch, a scaleable workgroup switch that provides 10/100 Mbps (Megabits per second) connectivity directly to the desktop. This product is expected to provide savings to companies by helping network administrators easily scale their network bandwidth and connections over time.
During the quarter, the company announced three LanDeskr product upgrades: LanDesk Configuration Manager v1.5, which allows IT administrators to schedule automatic system configuration changes and software distribution after business hours; LanDesk Management Suite 6, an integrated set of services that allow PCs in mixed operating environments to be remotely managed; and LanDesk Server Manager v3.0, which helps IT administrators monitor a server's performance and health and automatically alert them of any problems.
Computer Enhancement Products
Intel announced its 971 PC Camera Kit for manufacturers, which includes Intel PC camera silicon, software, schematics, design documentation and suggested manufacturing procedures. The 971 PC Camera Kit can be utilized by manufacturers to produce affordable, easy-to-use, quick time-to-market, portable PC cameras for home and business users.
Intel and industry leaders unveiled the first Intel-based servers with I20* technology and Intel I/0 processors. Intelligent Input/Output (I20) is a technology that offloads I/O activity from the server's main microprocessor to an I/O processor such as Intel's i960r processor, thereby increasing overall server performance and scalability.
Manufacturing Review
In Q4 Intel began shipping its first Pentium II processors built on 0.25 micron process technology. During the quarter two additional fabs, Fab 12 in Chandler, Arizona and Fab 11 in Rio Rancho, New Mexico, began production on 0.25 micron process technology. Intel now has 3 fabs producing microprocessors on 0.25 micron process technology.
Intel announced during the quarter that it plans, subject to government review, to purchase Digital Equipment Corporation's semiconductor operations for approximately $700 million. As part of the deal, Intel will serve as a foundry for Digital for multiple generations of Alpha* microprocessors. Other key components of the deal include a 10 year patent cross license agreement and Digital development of a full line of systems based on Intel's IA-64 processor family.
FINANCIAL REVIEW
Income Statement
Q4 1997 net revenue of $6.5 billion was up from Q4 1996, primarily due to higher revenue from sales of processors, partially offset by lower revenue from chipsets.
Gross margin percentage in the fourth quarter was 59 percent, compared to 63 percent in the fourth quarter of 1996. The decline in gross margin percentage was primarily due to a less favorable product mix, including the impact of purchased components on the SEC cartridge, and a weaker Flash memory market segment.
Q4 1997 total expenses (R&D and MG&A) of $1.4 billion increased 15 percent from Q4 1996 expenses due primarily to higher levels of R&D spending on product development and advertising spending. Expenses were 22% of revenues in Q4 1997, up from 19% in Q4 1996.
During the quarter, interest and other income was $201 million, up from $133 million in Q4 1996 due primarily to higher cash balances.
The effective tax rate for 1997 was 34.8%. This is down from the estimate of 35.5% due to settlement of federal tax audits and favorable resolution of significant state tax issues and tax matters in other countries.
Intel is now required to report two separate earnings per share numbers, basic EPS and diluted EPS. Diluted EPS is the same number as Intel has previously been reporting as earnings per share and includes the dilutive impact of employee options and the 1998 Step-Up Warrants.
Shares used in the calculation of diluted earnings per share are summarized below:
(millions of shares)
Q4 96 Q3 97 Q4 97
Average Shares Outstanding 1,644 1,635 1,633
Dilutive Effect of:
Stock Options 98 102 94
Step-Up Warrants 52 60 58
Total Shares 1,794 1,797 1,785
(Note: The 1998 Step-Up Warrants expire on March 14, 1998. At the end of Q4 1997 there were approximately 78 million warrants outstanding with the dilutive effect of 58 million shares, as noted above. By Q2 1998, the exercise of these warrants is expected to result in a net increase of approximately 20 million shares in the total shares for Diluted EPS.)
Year Ended 12/30/95 Year Ended 12/28/96 Year Ended 12/27/97
Average Shares Outstanding 1,650 1,645 1,635
Dilutive Effect of:
Stock Options 96 94 102
Step-Up Warrants 22 37 58
Total Shares 1,768 1,776 1,795
Balance Sheet
Intel's net cash position (cash plus short- and long-term investments less short- and long-term debt) at the end of Q4 was approximately $11.0 billion, an increase of $0.9 billion during the quarter. The company had $8.2 billion of net cash at the end of Q4 1996.
Significant components of the changes in net cash for Q4 1997 and the full year 1997 are summarized below:
Increase/(Decrease)
(in millions)
Q4 1997 Year ended
December 27, 1997
Net income $1,743 $6,945
Depreciation 583 2,192
Capital spending (1,584) (4,501)
Working capital
and other, net 1,032 813
Put warrant
proceeds, net 98 288
Stock repurchase
program (1,000) (3,372)
Sales of shares
to employees, plus
tax benefit and other 81 581
Dividends paid (49) (180)
Total change $ 904 $2,766
Inventories
(in millions)
September 27,
1997 December 27,
1997
Raw material $ 257 $ 255
Work in process 849 928
Finished goods 401 514
Total net inventories $1,507 $1,697
Capital spending was $1.6 billion and depreciation was $583 million in Q4 1997. Accounts receivable decreased by $483 million in the quarter. The company's average days-sales-outstanding was 43, the same as the third quarter.
During Q4 1997, the company repurchased 12.7 million shares of common stock at a cost of $1.0 billion under an ongoing program. As of December 27, 1997 the company's potential put warrant obligation was $2.0 billion to buy back 26.3 million shares of common stock. Of the total 280 million shares authorized for repurchase, approximately 213.4 million shares have been repurchased and 40.3 million shares of common stock remain available for repurchase under the stock repurchase program, after allowing for 26.3 million shares to cover outstanding put warrants.
Activity during the quarter related to put warrants and stock buybacks is as follows:
Increase/(Decrease)
(millions of shares)
Available For
Stock Buybacks (Less)
Allocated To
Put Warrants Net
Available
September 27, 1997 79.3 6.5 72.8
Put warrant sales _ 19.8 (19.8)
Stock buybacks (12.7) _ (12.7)
December 27, 1997 66.6 26.3 40.3
Stockholders' equity decreased by $651 million in Q4 1997. Changes in equity for Q4 1997 and the full year 1997 are summarized as follows:
Increase/(Decrease)
(in millions)
Q4 1997 Year ended
December 27, 1997
Net income $1,743 $6,945
Put warrant proceeds, net 98 288
Reclass of put warrant
obligation, net (1,459) (1,766)
Repurchase of stock (1,000) (3,372)
Dividends declared (49) (188)
Sales of shares to employees,
plus tax benefit and other 16 516
Total increase (decrease) $ (651) $2,423
Copies of this earnings release and Intel's 1996 annual report can be obtained via the Internet at www.intc.com or by calling Intel's transfer agent, Harris Trust and Savings Bank, at 1-800-298-0146.
Intel, the world's largest chip maker, is also a leading manufacturer of personal computer, networking and communications products. Additional information is available at www.intel.com/pressroom.
* Other brands and names are property of their respective owners.
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INTEL CORPORATION CONSOLIDATED SUMMARY FINANCIAL STATEMENTS
(Millions, except per share amounts)
INCOME 3 Months Ended 12 Months Ended
Dec. 27,
1997 Dec. 28,
1996 Dec. 27,
1997 Dec. 28,
1996
NET REVENUE $ 6,507 $ 6,440 $25,070 $20,847
Cost of sales 2,691 2,392 9,945 9,164
Research and development 605 520 2,347 1,808
Marketing, general and administrative 818 722 2,891 2,322
Operating costs and expenses 4,114 3,634 15,183 13,294
OPERATING INCOME 2,393 2,806 9,887 7,553
Interest and other 201 133 772 381
INCOME BEFORE TAXES 2,594 2,939 10,659 7,934
Income taxes 851 1,029 3,714 2,777
NET INCOME $ 1,743 $ 1,910 $ 6,945 $ 5,157
BASIC EARNINGS PER SHARE $ 1.07 $ 1.16 $ 4.25 $ 3.13
DILUTED EARNINGS PER SHARE $ 0.98 $ 1.06 $ 3.87 $ 2.90
COMMON SHARES OUTSTANDING 1,633 1,644 1,635 1,645
COMMON SHARES ASSUMING DILUTION 1,785 1,794 1,795 1,776
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BALANCE SHEET
At Dec. 27, 1997 At Dec. 28, 1996
CURRENT ASSETS
Cash and short-term investments $ 9,927 $ 7,994
Accounts receivable 3,438 3,723
Inventories 1,697 1,293
Deferred tax assets and other 805 674
Total current assets 15,867 13,684
Property, plant and equipment, net 10,666 8,487
Long-term investments 1,839 1,353
Other assets 508 211
TOTAL ASSETS $28,880 $23,735
CURRENT LIABILITIES
Short-term debt $ 322 $ 389
Accounts payable and accrued liabilities 4,017 3,014
Deferred income on shipments to distributors 516 474
Income taxes payable 1,165 986
Total current liabilities 6,020 4,863
LONG-TERM DEBT 448 728
DEFERRED TAX LIABILITIES 1,076 997
PUT WARRANTS 2,041 275
STOCKHOLDERS' EQUITY
Common Stock and capital in excess of par value 3,311 2,897
Retained earnings 15,984 13,975
Total stockholders' equity 19,295 16,872
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $28,880 $23,735
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ON TO THE $80s AND BEYOND!
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