CEO Paul Otellini says he does not see a significant
impact from the slowing U.S. economy.
A strong demand for servers and notebooks helped drive Intel's earnings in
the first quarter of 2008 and CEO Paul
Otellini told analysts that the slowdown in the U.S.
economy has not had a significant impact on Intel's core chip business.
Intel, which is considered a bellwether of the technology industry, reported
its first-quarter 2008 results April 15, and while the results were not
stellar, Otellini said the sluggish
U.S. economy, especially within the financial sector, has not affected
sales and shipments.
The chip maker reported first-quarter net income of $1.4 billion or 25 cents
a share, down about 11 percent from the same time last year when the company
posted income of $1.6 billion or 28 cents a share. Revenue for the first
quarter was $9.7 billion compared with $8.8 billion from a year ago.
For the first quarter of 2008, Wall Street analysts had been predicting
earnings of 25 cents a share and revenue of $9.6 billion. During the second
quarter of 2008, Intel is calling for revenue of between $9 and $9.6 billion.
Still, Intel executives remained optimistic.
"We really don't see this impacting our business at this time and we
haven't seen it in the last couple of quarters," Otellini said, adding
that now 75 percent of the company's business comes from outside North
America. "In my experience, when there are more difficult
economic times, people do two things. They turn to information technology for
productivity gains for their enterprises and they tend to buy the best-of-breed
products out there. If that happens, Intel is in a pretty good position."
Otellini said the full ramping of Intel's "Caneland"
platform for multisocket servers and demand for the company's new line of
45-nanometer "Penryn" processors helped drive the business. One
reason for the increase is companies such as Google and Amazon.com building
massive data centers for cloud computing and other efforts.
Intel also saw success with its notebook chips and is anticipating a growing
market for low-cost notebooks built with its new
line of Atom processors.
Leslie Fiering, an analyst with Gartner, said while Intel's notebook
business did well this quarter, it could also be facing some problems.
For one, the mobile division's costs are going up, with Intel putting more
R&D dollars and marketing muscle into the notebook division. At the same
time, the average selling price of the chips fell, and those prices could drop
more as Intel rolls out its low-cost Atom line.
"They believe right now that they can maintain margins, but that does
put pressure on the business unit," Fiering said.
While demand for servers and notebook chips kept Intel moving along during
the quarter, the company's NOR and NAND
flash memory division proved to be a drag on the overall bottom line.
Even before it announced its quarterly numbers, Intel told financial analyst
that its gross margins-a key number in determining profitability in the chip
business-would be lower than expected because the market for its NAND flash memory is suffering from lower prices due to oversupply. For the
quarter, Intel reported gross margins of 53.8 percent.
Another reason for Intel's lower numbers this quarter can be traced back to
the spin-off of the company's NOR flash
business into a
new entity called Numonyx. The company spent about $300 million to spin
that business off.
Intel's main competitor, Advanced Micro Devices, will report its own
first-quarter numbers April 17. AMD
has already said its first-quarter revenue will be down 15 percent compared
with the fourth quarter of 2007.
While Intel may have taken market share away from AMD in
the first quarter, especially within the server market, the smaller company is
expected to offer a much stronger product lineup later in 2008, which could
affect Intel's business.
In addition, a further downturn in the U.S. economy such as a reduction in consumer spending
could also force Intel to change its current strategy in order to stay
competitive, wrote John Spooner, an analyst with Technology Business Research.
"If this turns out to be the case, TBR believes that Intel is likely to
resort to price cuts both to motivate PC purchases [and] to fend off the
advances of AMD," Spooner wrote in a research note.
"Resulting price competition could limit both chip makers' revenue and
profitability potentials, as they fight for a larger share of fewer orders from