Intel Atom Processor Brings Good News amid Dismal Q4 Results

Chip giant Intel's latest quarterly results show Intel's net income fell from $2.3 billion during the fourth quarter of 2007 to $234 million in the fourth quarter of 2008. That dramatic falloff for Intel came as sales of PCs and server systems slowed down as part of the U.S. economic recession. The one bright spot in Intel's report involves the Atom processor, revenue from which increased 50 percent from the third quarter to the fourth quarter. Intel is also planning to move ahead with its 32-nm chips in 2009.

Intel, the world's largest supplier of microprocessors for PCs and servers, watched its 2008 fourth-quarter revenue and profits drop dramatically as the U.S. recession and the larger global economy continues to have a major impact within the IT industry, especially on PC and server sales.

During its fourth-quarter sales period, which ended Dec. 27, Intel recorded revenue of $8.2 billion, and the company reported net income of $234 million or 4 cents per share. By comparison, Intel reported a net income of $2.3 billion or 38 cents per share in the fourth quarter of 2007, with revenues of $10.71 billion. Intel also had to write down a $1 billion reduction in the value of its Clearwire investment during the last three months of 2008.

Intel's 2008 fourth-quarter numbers were in line with what Wall Street analysts had been expecting, and Intel did warn investors both in November 2008 and earlier in January 2009 that its revenues would suffer during the quarter. Still, Intel's latest results showed how the global economy and the financial situation in the United States has been affecting IT companies and that even stalwarts such as Intel, Google and Oracle are not immune.

"The pace of the revenue decline in the quarter was dramatic," said CEO Paul Otellini during a Jan. 15 conference call with financial analysts to discuss the latest numbers. "These numbers resulted from reduced demand and contractions across the supply chain. While inventories have declined, we are assuming further reduction in [the first quarter of 2009]."

Otellini and his management team did not offer any financial guidance for the first quarter of 2009, due to ongoing uncertainty about the economy and IT and consumer spending. However, Intel did note that for internal purposes the company is estimating revenue of $7 billion for the first quarter of 2009, which is in line with Wall Street estimates of $7.2 billion.

Otellini did not speculate on whether Intel would cut the price of its processors to help reduce its chip inventory, although the CEO noted that the ASPs (average selling prices) of the company's microprocessors remained flat during the quarter.

Intel does plan to spend money and invest in new technology in 2009, including ramping up its production of 32-nanometer "Westmere" processors. The first of these processors could appear in desktops and notebook by the end of 2009. For the year, Intel plans to spend about $5.4 billion on R&D.

"I think the important thing is that, despite the slowdown in [the fourth quarter of 2008] and what looks to be a very tough first half [of] 2009, Intel is continuing forward with important projects like the 32-nanometer manufacturing rollout," John Spooner, an analyst with Technology Business Research, wrote in an e-mail. "Sure it's going to manage expenses very carefully in 2009, but it won't sacrifice the fates of new products on the altar of what it sees as more of a correction."

The one bright spot for Intel during the quarter involved its Atom processor and platforms for mininotebooks or "netbooks" and MIDs (mobile Internet devices). Revenue from Atom processors and chip sets shot up 50 percent from the third quarter of 2008 to the fourth quarter, and these parts pulled in $300 million in revenue for Intel. At the recent International CES expo in Las Vegas, nearly every PC vendor offered a new version of a netbook or mininotebook, nearly all of which used an Intel Atom processor.

While some observers have speculated that the Intel Atom processor actually reduces sales of older Intel chips, such as the Celeron processor, Otellini said Atom is creating its own market.

"While there is some cannibalization, the data suggests that the vast majority of netbooks sales are incremental," Otellini said.

During the call, Otellini was asked about other platforms and processors that have been created for others types of netbooks, mininotebooks and ultraportable laptops. While he did not mention any other platforms specifically, he said these offerings justified the market Intel created with Atom.

During CES, Advanced Micro Devices rolled out its "Yukon" platform for ultraportable, affordable notebooks, and companies such as Freescale Semiconductor, Texas Instruments and Qualcomm are offering their own netbook and MID platforms that use ARM chips.