intel.com
Intel Reports Record Quarterly Revenue, Net Income and EPS
Twelfth Consecutive Year of Revenue Growth
SANTA CLARA, Calif., Jan.12, 1999 - Intel Corporation set new quarterly records for revenue, net income, earnings per share and microprocessor unit shipments, the company said today. Seasonally strong demand for Intel's P6 micro architecture products in the second half lifted the company's total 1998 revenue to a new annual record.
Revenue totaled $26.3 billion in 1998, up 5 percent from the prior record of $25.1 billion in 1997. Net income was $6.1 billion, down 13 percent from $6.9 billion in 1997. Earnings per share of $3.45 declined 11 percent from $3.87 per share in 1997.
Record fourth quarter revenue of $7.6 billion was up 17 percent from fourth quarter 1997 revenue of $6.5 billion. Fourth quarter revenue was up 13 percent from third quarter 1998 revenue of $6.7 billion.
Record fourth quarter net income of $2.1 billion was up 18 percent from fourth quarter 1997 net income of $1.7 billion. Net income in the fourth quarter was up 32 percent from third quarter 1998 net income of $1.6 billion.
Record fourth quarter earnings per share of $1.19 increased 21 percent from $0.98 in the fourth quarter of 1997 and rose 34 percent from $0.89 in the third quarter of 1998.
"Intel achieved its 12th consecutive year of revenue growth in spite of the challenges of a turbulent market in 1998," said Dr. Craig R. Barrett, president and chief executive officer. "During the fourth quarter we achieved record revenue in the Americas, Europe and Asia-Pacific."
"Intel enters 1999 with a first quarter roadmap offering new products in every segment of the computer market. This quarter we will launch Pentium® III and Pentium III Xeon™ processors, the first products in the next generation of Intel Architecture microprocessors. On the manufacturing front we will soon begin the transition to 0.18 micron, the next generation of process technology."
"The investments of the last year in new product development and productivity improvement have strengthened the company and positioned it well for a market that will continue to be competitive and dynamic," Barrett said.
During the quarter, the company paid its regular quarterly cash dividend of $0.04 per share. The dividend was paid on Dec. 1, 1998, to stockholders of record on Nov. 7, 1998. This is an increase from the previous $0.03 per share quarterly dividend. 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 fourth quarter, the company repurchased a total of 16.5 million shares of common stock at a cost of $1.5 billion. For the full year, the company repurchased 80.9 million shares at a cost of $6.7 billion. Since the program began in 1990, the company has repurchased 294.3 million shares at a total cost of $13.6 billion.
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 first quarter of 1999 to be down from fourth quarter revenue of $7.6 billion due to seasonal factors.
** Gross margin percentage in the first quarter of 1999 is expected to be down slightly from 58 percent in the fourth quarter. Intel's gross margin expectation for 1999 is 57 percent, plus or minus a few points, compared to 54 percent for all of 1998. 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 first quarter of 1999 are expected to be approximately 2 to 4 percent lower than fourth quarter expenses of $1.6 billion. Expenses are dependent in part on the level of revenue.
** R&D spending is expected to be approximately $3.0 billion for 1999, up from $2.7 billion in 1998.
** The company expects interest and other income for the first quarter of 1999 to be approximately $200 million, assuming no significant changes in expected interest rates or cash balances, and no unanticipated items.
** The tax rate for 1999 is expected to be 33.5 percent.
** Capital spending for 1999 is expected to be approximately $3.0 billion, down from $4.0 billion in 1998, which included approximately $475 million of capital assets acquired from Digital Equipment Corporation. The lower capital spending for 1999 is primarily a result of reduced investment for new facilities and improved utilization of manufacturing equipment.
** Depreciation and amortization is expected to be approximately $3.4 billion for 1999, up from $2.8 billion in 1998. Depreciation and amortization for the first quarter of 1999 is expected to be approximately $820 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 ongoing 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 and changes due to year 2000 issues; 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; 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 transition to the 0.18 micron process technology; excess or shortage of manufacturing capacity; the ability to grow new 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); impact on the company's business due to internal systems or systems of suppliers, infrastructure providers and other third parties adversely affected by year 2000 problems; claims due to year 2000 issues allegedly related to the company's products or year 2000 remediation efforts; 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 Sept. 26, 1998 (Part I, Item 2, Outlook section).
FOURTH QUARTER 1998 BUSINESS REVIEW
** Microprocessor unit shipments were up in the fourth quarter and set a new record.
** Chipset unit shipments were up in the fourth quarter and set a new record.
** Motherboard unit shipments were up in the fourth quarter.
** Embedded processor and microcontroller unit shipments were up in the fourth quarter.
** Flash memory unit shipments were up in the fourth quarter and set a new record.
** Unit shipments of Fast Ethernet connections and switches were up in the fourth quarter and set a new record.
** Gross margin improved due to higher revenue, including a favorable mix of the P6 family of processors and the positive impact of higher volumes, as well as the realization of benefits from continuing product cost reduction efforts.
** Expenses during the quarter were up 16 percent from the third quarter, higher than the revised guidance Intel gave in November that spending was expected to be approximately 8 to 10 percent higher than the third quarter expenses. The higher than expected expenses in the fourth quarter are primarily attributable to incremental spending associated with revenue and profit dependent expenses and higher than expected utilization on the Intel Inside® program.
** The effective tax rate for the fourth quarter was 33.0 percent.
FOURTH QUARTER 1998 HIGHLIGHTS
Processor and Platform Products
** During the quarter, Intel began shipping three new Pentium II Xeon processors running at 450 MHz, in support of their launch on Jan. 5, 1999. The new processors incorporate 512 KB, 1 MB and 2 MB of L2 cache for servers and workstations.
** During the quarter, Intel began shipping 366- and 400-MHz versions of the Intel® Celeron™ processors in support of their launch on Jan. 4, 1999. These new processors are designed to strengthen Intel's worldwide leadership in all channels of the low-cost PC market segment.
** On Dec. 8, 1998, Intel and the Department of Energy (DOE) announced that Intel would provide a royalty-free license for its Pentium processor with MMX™ technology design to the U.S. government for the development of custom-made microprocessors for space and defense purposes. The agreement was designed to save taxpayer money and provide the government with a major increase in processing power over technology in use today.
Networking and Communications Products
** On Oct. 19, 1998, Intel announced that it had entered into an agreement to acquire Shiva Corporation. The acquisition is aimed at rapidly expanding Intel's networking product line with remote access and virtual private networking (VPN) solutions for the small to medium enterprise market segment and the remote needs of campuses and branch offices.
** During the quarter, Intel introduced the Intel NetportExpress™ 10/100 3-port Print Server which provides low-cost, high-speed Ethernet and Fast Ethernet network connections for up to three printers.
** On Nov. 2, 1998, Intel introduced the Intel InBusiness™ eMail Station, a networking device that provides small businesses with professional e-mail capabilities at an affordable price.
** During the quarter, Intel introduced a new version of the Intel Create & Share™ Camera Pack featuring a new user interface and software for the holiday buying season.
Computer Enhancement Products
** During the quarter, Intel added three high-performance, 32-bit solutions to its embedded product line. Intel's 166- and 266-MHz low-power Pentium processors with MMX technology enable new point-of-sale, industrial automation and networking equipment designs. The 100-MHz i960® VH Embedded-PCI processor reduces the number of components typically required to design switches, hubs, routers, remote access equipment and adapter cards for PCs and servers. The SA-1100 StrongArm™*** processor and SA-1101 companion chip help enable hand-held computing devices with e-mail, fax and Internet access capability.
Corporate Strategic Investments
** During the quarter, Intel and Micron Technology, Inc. announced a $500 million equity investment in Micron by Intel. The investment in Micron is part of Intel's strategy to support the development and supply of next generation memory products and to help drive PC industry growth by accelerating the adoption of Direct RDRAM, a high-speed memory interface technology.
** During the fourth quarter, Intel also closed 29 other new equity investments totaling approximately $65 million. Some of the areas that the company invested in include computer-aided design software, embedded computing devices, and residential broadband communications. Several of these investments were made in companies located in Asia.
** During 1998, Intel made over 100 new equity investments with the intent of expanding the computing industry and enhancing Intel's business capabilities. Intel's corporate strategic investment program currently includes over 200 equity investment positions worldwide.
Manufacturing Review
** Intel completed the conversion of microprocessor manufacturing to the 0.25 micron process technology and exited 1998 with all microprocessor shipments manufactured on the 0.25 micron process.
** Intel has accelerated initial production on its 0.18 micron process technology and plans to offer the first microprocessor manufactured on this advanced process in the first half of 1999.
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 Web site at www.intc.com in a spreadsheet format that can be downloaded.
Copies of this earnings release and Intel's 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.
* Other brands and names are property of their respective owners.
***ARM and StrongARM are trademarks of Advanced RISC Machines, Ltd.
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