Record Intel Third Quarter Revenue
Q3 Revenue $6.7 Billion; Q3 Earnings per Share $0.89; Quarterly Cash
Dividend Increased
SANTA CLARA, Calif., Oct.13, 1998 - Driven by strong worldwide demand
for PC products, Intel Corporation set a new record for quarterly
revenue and unit shipments of microprocessors, the company said today.
Third quarter revenue of $6.7 billion was the highest ever and was up 9
percent from third quarter 1997 revenue of $6.2 billion. Third quarter
revenue was up 14 percent from second quarter 1998 revenue of $5.9
billion.
Net income in the third quarter was $1.6 billion, essentially flat with
the third quarter of 1997. Net income in the third quarter was up 33
percent from second quarter 1998 net income of $1.2 billion.
Earnings per share in the third quarter increased to $0.89 from $0.88 in
the third quarter of 1997 and rose 35 percent from $0.66 in the second
quarter of 1998.
"We are pleased with our overall performance in the last quarter," said
Dr. Craig R. Barrett, president and chief executive officer. "We had
growth across nearly all of our geographies and product lines, including
strong microprocessor sales. In the third quarter, the PC industry
recovered from its inventory problems and is benefiting from strong
seasonal demand."
"In the product development area, we had successful introductions of new
products for each computing segment, ranging from new Pentium® II Xeon™
processors for servers and workstations to the Intel® Celeron™
processors 333 MHz and 300A MHz for basic computers."
During the quarter, the company paid its regular quarterly cash dividend
of $0.03 per share. The dividend was paid on Sept. 1, 1998, to
stockholders of record on Aug. 7, 1998. Also during the quarter, the
board of directors declared a $0.04 per share quarterly dividend to be
paid on Dec. 1, 1998, to stockholders of record on Nov. 7, 1998. Intel
has paid a regular quarterly cash dividend for six years, and the
dividend has been increased in each of the past five years.
In the third quarter, the company repurchased a total of 20.1 million
shares of common stock at a cost of $1.7 billion. The company has
repurchased a total of 64.4 million shares at a cost of $5.2 billion
year to date, and has repurchased 277.8 million shares at a total cost
of $12.1 billion since the program began in 1990.
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.
** The company expects revenue for the fourth quarter of 1998 to be up
slightly from third quarter revenue of $6.7 billion. Consistent with the
company's earlier expectations, second half revenue is expected to be
greater than first half revenue.
** Gross margin percentage in the fourth quarter of 1998 is expected to
be flat to slightly up from 53 percent in the third quarter. In the
short-term, Intel's gross margin percentage varies primarily with
revenue levels and product mix.
** Expenses (R&D plus MG&A) in the fourth quarter of 1998 are expected
to be approximately 3 to 5 percent higher than third quarter expenses of
$1.4 billion. Expenses are dependent in part on the level of revenue.
** The company has reduced headcount by approximately 2,000 people since
the end of the first quarter, excluding approximately 1,800 people added
as a result of the acquisition of Digital Equipment Corporation's
semiconductor manufacturing operations. Intel is on track to complete
the reduction of approximately 3,000 employees by the end of the year.
** R&D spending for the fourth quarter of 1998 is expected to be
approximately $650 million.
** The company expects interest and other income for the fourth quarter
of 1998 to be approximately $160 million, assuming no significant
changes in expected interest rates or cash balances, and no
unanticipated items.
** The tax rate for the fourth quarter of 1998 is expected to be 33.0
percent.
** Capital spending for 1998 is now expected to be approximately $4.2
billion. This is less than the previous guidance for the year of $4.5 to
$4.7 billion. This change in guidance is primarily as a result of the
facilities realignment that the company mentioned in the third quarter
pre-release in September and the company's continued efforts to control
costs. The current estimate includes the acquisition of the capital
assets of Digital Equipment Corporation's semiconductor manufacturing
operations.
** Depreciation for the fourth quarter of 1998 is expected to be
approximately $780 million.
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 such as the current global financial difficulties, and growth
in the computing industry in various geographic regions; changes in
customer order patterns, including changes in customer and channel
inventory levels; 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; 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; costs associated
with excess or shortage of manufacturing capacity; unanticipated costs
or other adverse effects associated with processors and other products
containing errata (deviations from published specifications); impact on
the Company's business due to internal systems or systems of suppliers
and other third parties adversely affected by year 2000 problems;
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 June 27, 1998 (Part I, Item 2, Outlook
section).
THIRD QUARTER 1998 BUSINESS REVIEW
** Unit shipments of microprocessors set a new record in the third
quarter.
** Chipset unit shipments were up significantly from the second quarter
and set a new record.
** Motherboard units shipped in the third quarter were up from the
second quarter.
** Embedded processor and microcontroller unit shipments were down from
the second quarter.
** Flash memory units shipped during the third quarter were up from the
second quarter.
** Unit shipments of Fast Ethernet connections, hubs and switches were
all up from the second quarter.
** Gross margin percentage was 53 percent, up from 49 percent in the
second quarter. Gross margin improved due to a favorable mix of the P6
family of processors and higher revenue in the third quarter, as well as
the realization of benefits from continuing product cost reduction
efforts.
** Expenses during the quarter were up 7 percent from the second
quarter, consistent with the revised guidance Intel gave in September
that spending was expected to be 7 to 8 percent higher than the second
quarter expenses.
** The effective tax rate for the third quarter was 33.0 percent.
THIRD QUARTER 1998 HIGHLIGHTS
Processor and Platform Products
** On Aug. 24, Intel introduced the Pentium II processor 450 MHz, the
fastest processor ever for performance desktop PCs and entry-level
servers and workstations.
** During the quarter, Intel announced new 333 MHz and 300 MHz versions
of the Intel Celeron processor, both with 128 KB of integrated L2 cache
on the processor core, designed to meet the specific needs of Basic PC
users.
** Building on the broad and rapid adoption of Pentium II
processor-based mobile PCs, Intel introduced the mobile Pentium II
processor 300 MHz. This processor offers mobile users a performance
boost while preserving system battery life.
** During the quarter, Intel launched the Pentium II Xeon processor,
specifically designed for mid- and high-range servers and workstations.
This processor features high performance, scalability, manageability and
mission-critical reliability.
Networking and Communications Products
** Intel announced the industry's first single chip phoneline based
silicon solution for home networking during the quarter. The Intel 21145
Phoneline/Ethernet LAN controller will enable home networking over
existing telephone lines. This technology can help family members
simultaneously access computer files and the Internet, as well as print
documents and play computer games, from any PC in the home.
** On Aug. 31, the ProShare® Video System 500 was introduced. This new
desktop video conferencing product is distinguished by its single-board
design, improved ease of use, and higher quality video.
** During the quarter, Intel announced LANDesk® Client Manager 3.3 cv, a
new version of systems management software that provides a migration
path for customers who want to increase the management level of older
PCs as they move toward full deployment of Wired for Management
(WfM)-enabled systems.
Computer Enhancement Products
** On Sept. 29, Eastman Kodak Corporation and Intel detailed their new
digital imaging strategy to bridge traditional picture-taking with the
benefits of digital imaging. This is to be accomplished through film
digitization, jointly developed products and a three-year, collaborative
marketing campaign in which the companies will spend up to $150 million.
The two companies have also begun market tests for Kodak Picture CD*, an
all-in-one, auto-loading CD-ROM that gives consumers their pictures in
an easy-to-use, easy-to-store digital format.
Corporate Strategic Investments
** During the quarter, Intel closed approximately 25 new equity
investments totaling approximately $65 million. Intel's corporate
strategic investment program currently includes approximately 200 equity
investment positions. Some of the areas the company invested in during
the third quarter included enterprise software, wireless networks, and
advanced semiconductor process technologies. These investments were made
with the intent of expanding the computing industry and enhancing
Intel's business capabilities.
Manufacturing Review
** As planned, Intel is approaching the completion of the 0.25 micron
conversion and expects to exit 1998 with all microprocessor shipments
manufactured on the 0.25 micron process technology. Intel's
implementation of the 0.18 micron process technology is scheduled to
begin in the first half of 1999.
** Intel continues to make progress in lowering manufacturing costs.
During the quarter, the company announced additional headcount reduction
plans for 1999. This includes approximately 675 manufacturing positions
at Fab 17 in Hudson, Mass., and 500 to 700 manufacturing positions in
Puerto Rico.
FINANCIAL INFORMATION
The financial review section is in the tables following this release.
Along with the income statement and balance sheet information, this
additional information is also available from the investor Website at
www.intc.com in a spreadsheet format that can be downloaded.
Copies of this earnings release and Intel's 1997 annual report can be
obtained via the Internet at www.intc.com or by calling Intel's transfer
agent, Harris Trust and Savings Bank, at (800) 298-0146.
Intel, the world's largest chip maker, is also a leading manufacturer of
computer, networking and communications products. Additional information
about Intel is available at www.intel.com/pressroom.
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INTEL CORPORATION
CONSOLIDATED SUMMARY FINANCIAL STATEMENTS
(In millions, except per share amounts)
INCOMEThree Months
Ended
Nine Months
Ended
Sept. 26, 1998
Sept. 27, 1997
Sept. 26, 1998
Sept. 27, 1997
NET REVENUE$ 6,731$ 6,155$ 18,659$ 18,563Cost of sales3,1922,6048,968
7,254 Research and development6175861,8351,742 Marketing, general and
administrative7666762,1482,073Purchased in-process research and
development--165-Operating costs and expenses4,5753,86613,11611,069
OPERATING INCOME2,1562,2895,5437,494Interest and other170151514571INCOME
BEFORE TAXES2,3262,4406,0578,065Income taxes7678662,0532,863NET INCOME$
1,559$ 1,574$ 4,004$ 5,202
BASIC EARNINGS PER SHARE$ 0.93$ 0.96$ 2.40$ 3.18DILUTED EARNINGS PER
SHARE$ 0.89$ 0.88$ 2.27$ 2.89
COMMON SHARES OUTSTANDING1,6781,6351,6701,636COMMON SHARES ASSUMING
DILUTION1,7531,7971,7651,798
------------------------------------------------------------------------
BALANCE SHEETAt Sept. 26, 1998
At June 27, 1998
At Dec. 27, 1997
CURRENT ASSETSCash and short-term investments$ 8,687$ 7,698$ 9,927
Accounts receivable3,6363,1263,438Inventories:Raw materials258250255
Work in process879988928 Finished goods441465514 1,5781,7031,697
Deferred tax assets and other812841805Total current assets14,71313,368
15,867
Property, plant and equipment, net1,86312,00310,666Long-term investments
1,7892,0401,839Other assets1,0231,007508TOTAL ASSETS$ 29,388$ 28,418$
28,880
CURRENT LIABILITIESShort-term debt$ 192$ 242$ 322Accounts payable and
accrued liabilities3,7953,4454,017Deferred income on shipments to
distributors471391516Income taxes payable7981761,165Total current
liabilities5,2564,2546,020LONG-TERM DEBT583472448DEFERRED TAX
LIABILITIES1,1621,2481,076PUT WARRANTS5887112,041
STOCKHOLDERS' EQUITYCommon Stock and capital in excess of par value4,775
4,8533,311Retained earnings17,02416,88015,984Total stockholders' equity
21,79921,73319,295TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$ 29,388$
28,418$ 28,880
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INTEL CORPORATION
SUPPLEMENTAL FINANCIAL AND OTHER INFORMATION
(In millions)
Q3 '98Q2 '98Q3 '97GEOGRAPHIC REVENUES:Americas47%44%48%Europe26%28%24%
Asia-Pacific20%20%19%Japan7%8%9%
SELECTED CASH FLOW INFORMATION:Depreciation$734$674$559Capital spending
($722)($1,077)($1,159)Put warrant proceeds, net$13$27$49Stock repurchase
program($1,717)($1,739)($251)Proceeds of sales of shares to employees,
tax benefit & other$239$153$170Proceeds of Step-Up Warrants$0$0$9
Dividends paid($50)($51)($49)Net cash used for acquisitions (Digital Q2)
$0($625)$0
SHARE INFORMATION (adjusted for stock splits):Average common shares
outstanding1,6781,6911,635Dilutive effect of:Stock options7578102Step-Up
Warrants--60Common shares assuming dilution1,7531,7691,797
STOCK BUYBACK:BUYBACK ACTIVITY:Shares repurchased20.122.22.5Cumulative
shares repurchased277.8257.7200.7
PUT WARRANT ACTIVITY:Put warrant sales2.55.05.5Put warrant expirations
(0.5)(1.0)(20.0)Put warrant exercises(3.0)(10.3)-Put warrants
outstanding7.58.56.5
BUYBACK SUMMARY:Shares authorized for buyback380.0380.0280.0Increase in
authorization---Cumulative shares repurchased(277.8)(257.7)(200.7)Put
warrants outstanding(7.5)(8.5)(6.5)Shares available for buyback94.7113.8
72.8
OTHER INFORMATION:Employees (in thousands)65.466.761.3Days sales
outstanding394443
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