Intel’s latest quarterly report did little to soothe anxiety on Wall Street.
On Jan. 15, the chip giant reported 2007 fourth-quarter earnings of 38 cents a share and revenue of $10.7 billion, an increase of more than 10 percent compared with the same time period in 2006. However, Wall Street was looking for earnings of 40 cents a share and revenue of $10.8 billion, which caused the Santa Clara, Calif., company’s stock to plummet in after-hours trading.
For Wall Street analysts, Intel’s results-always a bellwether of the overall IT industry-signaled that the U.S. economy continues to stumble and the PC market is starting to slow down after growing in 2007 thanks to notebook sales. Intel Chief Financial Officer Stacy Smith told analysts in a call after the numbers were announced that he wanted to be cautious when talking about the strength of the U.S. economy.
CEO Paul Otellini did his best to reassure Wall Street that both Intel and the PC remain viable despite what some see as a slowdown in the U.S. economy. Otellini pointed to the company’s flash memory business, which suffered due to lower-than-expected prices, as one of the main reasons why Intel missed expectations in the quarter.
Despite Intel’s less-than-stellar results in the fourth quarter, several analysts believe that the company’s product road map, especially its high-end server products and low-end chips for mobile devices and laptops, remains solid.
Analysts also believe that the lack of competition from Advanced Micro Devices, which reports its fourth-quarter results Jan. 17, could help Intel bounce back in the first part of 2008.
Several analysts believe that Intel will concentrate on emerging markets in 2008, such as China and India, if the U.S. economy and Americans’ appetite for PCs begin to dwindle. Later this year, Intel plans to bring a processor called Silverthorne into the market, which it originally designed for MIDs (mobile Internet devices).
Now, Intel will also use Silverthorne, which is built on the company’s 45-nanometer manufacturing process, as a way to supply emerging markets with low-cost laptops. The idea here is to make up margins by shipping processors in high volume, said Mike Feibus, an analyst with TechKnowledge Strategies.
Since Intel can squeeze more 45-nanometer processors onto a wafer than it could with 65-nanometer chips, Silverthorne will help the company cut costs later in the year.
Intel Firing on All Cylinders
“It’s very interesting that Intel is getting Silverthorne into lower-priced PCs,” Feibus said. “It might pull down prices further, but it looks like it might be profitable for Intel. If you look at the pyramid for demand, it’s the next layer, and what they give up in price they can make up in volume. Right now, it looks like all of Intel’s 45-nanometer products are coming along. The company is firing on all cylinders.”
Since introducing the first 45-nanometer Penryn chips in November, Otellini said the company has brought more than 30 different chips to the market.
While Intel’s quarterly results might show the PC market slowing in the United States, Feibus said the worldwide market for desktops and notebooks will remain strong. Part of that is due to a weak U.S. dollar, which means customers in Europe and other countries, where the currency is stronger, will benefit from low-cost desktops and notebooks in 2008.
Otellini said during a talk with analysts Jan. 15 that about 75 percent of Intel’s business comes from outside the U.S. market.
While Intel is looking at the low-end and emerging markets, it will also begin to concentrate on the server market, where it has introduced several new processors. In contrast, AMD, its main rival, has failed to bring its quad-core Opteron chip to the market in significant numbers yet.
John Spooner, an analyst with Technology Business Research, wrote in a research note that Intel is likely to start 2008 on solid footing within the enterprise space, where margins are typically higher.
“TBR believes that, thanks to the strengths of its Core Microarchitecture and the relative absence of a competing quad-core Opteron processor from Advanced Micro Devices, to-date, Intel remains in a good position in the server space,” Spooner wrote.
“Intel’s server shipments, [driven] in part by sales of its quad-core processors, reached record levels in [the fourth quarter of 2007]. The company expects that trend to continue into 2008.”