RE: R-E-S-P-E-C-T !
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.
INTEL CORPORATION
CONSOLIDATED SUMMARY FINANCIAL
STATEMENTS
(In millions, except per share amounts)
INCOME
Three 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
$ 18,563
Cost of sales
3,192
2,604
8,968
7,254
Research and
development
617
586
1,835
1,742
Marketing, general
and administrative
766
676
2,148
2,073
Purchased
in-process
research and
development
-
-
165
-
Operating costs
and expenses
4,575
3,866
13,116
11,069
OPERATING
INCOME
2,156
2,289
5,543
7,494
Interest and other
170
151
514
571
INCOME BEFORE
TAXES
2,326
2,440
6,057
8,065
Income taxes
767
866
2,053
2,863
NET INCOME
$ 1,559
$ 1,574
$ 4,004
$ 5,202
BASIC EARNINGS
PER SHARE
$ 0.93
$ 0.96
$ 2.40
$ 3.18
DILUTED
EARNINGS PER
SHARE
$ 0.89
$ 0.88
$ 2.27
$ 2.89
COMMON
SHARES
OUTSTANDING
1,678
1,635
1,670
1,636
COMMON
SHARES
ASSUMING
DILUTION
1,753
1,797
1,765
1,798
BALANCE SHEET
At Sept.
26,
1998
At June
27, 1998
At Dec.
27, 1997
CURRENT ASSETS
Cash and short-term
investments
$ 8,687
$ 7,698
$ 9,927
Accounts receivable
3,636
3,126
3,438
Inventories:
Raw materials
258
250
255
Work in process
879
988
928
Finished goods
441
465
514
1,578
1,703
1,697
Deferred tax assets and
other
812
841
805
Total current assets
14,713
13,368
15,867
Property, plant and
equipment, net
1,863
12,003
10,666
Long-term investments
1,789
2,040
1,839
Other assets
1,023
1,007
508
TOTAL ASSETS
$
29,388
$ 28,418
$ 28,880
CURRENT LIABILITIES
Short-term debt
$ 192
$ 242
$ 322
Accounts payable and
accrued liabilities
3,795
3,445
4,017
Deferred income on
shipments to distributors
471
391
516
Income taxes payable
798
176
1,165
Total current liabilities
5,256
4,254
6,020
LONG-TERM DEBT
583
472
448
DEFERRED TAX
LIABILITIES
1,162
1,248
1,076
PUT WARRANTS
588
711
2,041
STOCKHOLDERS'
EQUITY
Common Stock and capital
in excess of par value
4,775
4,853
3,311
Retained earnings
17,024
16,880
15,984
Total stockholders' equity
21,799
21,733
19,295
TOTAL LIABILITIES AND
STOCKHOLDERS'
EQUITY
$
29,388
$ 28,418
$ 28,880
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