Intel Q4 profit doubles, cuts 2003 capex

SAN FRANCISCO: Intel Corp., the world's largest maker of microprocessors has posted fourth-quarter earnings that more than doubled as revenues outpaced expectations on sales of higher-priced chips. But the company said it planned to cut capital expenses for 2003 more deeply than Wall Street had expected and said first-quarter revenues would be lower, reflecting a typical seasonal slowdown.

"We're trying to manage the company very cautiously, keeping spending flat to down," Andy Bryant, chief financial officer, said in a conference call. While Intel, like its smaller rivals, remained mired in a two-year slump in the semiconductor industry, the company was also running lean so that it stood to "get a lot of upside if we see revenue growth," Bryant said.

Net income for the fourth quarter rose to $1.0 billion, or 16 cents per share, topping the most bullish analyst forecast and up from $504 million, or 7 cents, a year earlier. Revenue rose to $7.2 billion up from $7 billion a year earlier and above the raised forecast for the quarter that Intel had offered in December.

Shares of Intel rose to $17.94 in after-hours trade on Instinet, up from a closing price of $17.79. Fourth-quarter revenue was at the high end of the normal seasonal fourth-quarter range, Bryant told Reuters. "Orders continued to come in through the holiday season."

The average selling price for Intel's microprocessors was higher due to increased sales of pricier chips for laptops and server computers compared to desktops, an improvement analysts had expected.

The company also saw record shipments of microprocessors and motherboard chipsets -- or groups of microchips included in a computer's basic circuitry designed to work as a unit. Intel gained market share in most areas, executives said.

‘Positive Surprises’ forecast

Sales reached an all-time record in Asia Pacific, with particular strength in China and Taiwan. Sales were also strong in Europe and Japan, they said. Intel's quarter "clearly reflects the seasonal uptick in PC demand, but it also shows significant fiscal restraint on behalf of Intel, which is now starting to drive the bottom line," said Mark Edelstone of Morgan Stanley. "The trend will continue and (will) be the source of future positive surprises."

Intel cautioned that capital spending this year would be between $3.5 billion and $3.9 billion, down from $4.7 billion in 2002. That was lower than Wall Street expectations and bad news for the semiconductor equipment market, for which Intel is the biggest customer.

Shares of three of the largest chip equipment makers, Applied Materials Inc., KLA-Tencor Corp. and Novellus Systems Inc. all dropped in after-hours trade. Intel said it would direct more than 90 percent of its 2003 budget for chip fabrication at efforts to make more powerful chips and to manufacture them more efficiently.

Specifically, Intel is moving to 300-millimeter silicon wafers from 200-millimeter wafers, a move that increases cost efficiencies. It is also shrinking the distance between transistors on a chip from 130 nanometers to 90 nanometers - less than one one-thousandth of the thickness of a human hair.

Spending cutback 'good thing’

Transistors are the microscopic switches that crunch complex computer code. Increasing their density increases the power of the chip. "I think it's actually a good thing they're throttling back spending. It means they're focused on their own return on invested capital," said Douglas Lee of Banc of America Securities.

Intel said it expected first-quarter revenue of between $6.5 billion and $7.0 billion, and that it would stop reporting earnings excluding acquisition-related costs with its first-quarter earnings announcement. The first quarter should be down from the fourth quarter, as is typical, Bryant said. "What we've seen for essentially eight quarters is flat revenues ... no underlying economic growth."

Analysts and investors are looking for the chip industry to pull out of its slump in 2003, and Intel said it hoped to see increased sales as consumers and businesses are finally driven to replace outmoded PCs. One spur for those upgrades will be that Microsoft Corp. will end its support for the Windows 98 and Windows NT version 4 operating systems, said Intel president and chief operating officer Paul Otellini.

"It was a factor in Intel's decision to buy quite a few PCs starting this year," he added. Intel said it expected to post an investment loss of $125 million in the first-quarter, reflecting a write-down of some $170 million in the value of its equity investments.

Additionally, Intel said its tax rate for 2003 was expected to be about 30.5 percent, up from 27.4 percent last year, mainly due to a higher percentage of profits being expected in higher-tax jurisdictions. For fiscal 2002, Intel posted net income of $3.1 billion, or earnings per share of 46 cents, up from $1.3 billion, or 19 cents, in 2001, on revenue of $26.8 billion, up from $26.5 billion for the previous year.

Industry barometer

Because of its size and market share, Intel is watched as a barometer for the semiconductor industry, which in the past two years has seen its worst downturn ever. "I would argue that we're seeing some seasonal variations, but we're still rolling along," said Dan Scovel of Needham & Co. Inc. "We're not in an upturn, but things also aren't getting worse."

Intel represented about one-third of the total revenues of the top 10 semiconductor companies, according to research firm IC Insights. Shares of Intel closed at $17.79, up 41 cents, or 2.4 percent, on the Nasdaq stock market. Intel's stock has tracked the Philadelphia semiconductor index, with both dropping by roughly 50 percent in the past 52 weeks.

© Reuters