Arik Hesseldahl

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Intel’s Q3 Beats Street’s Lowered Expectations

Chipmaker Intel just reported its earnings for the third quarter, and, given the fact that it warned of declining sales last month, it could have been worse.

Per-share earnings were 60 cents on sales of $13.5 billion. Analysts had expected earnings of 50 cents on sales of $13.2 billion. Gross margin was 63.1 percent, slightly higher than the 62 percent it said it expected.

For the fourth quarter, Intel said it expects sales of $13.6 billion, which is lower than the consensus of Wall Street analysts, who had expected $13.8 billion. That’s probably why Intel shares are down in after-hours trading. As of 4:25 pm ET, Intel shares were down 49 cents, or about 2 percent, to $21.86 per share.

Intel said on Sept. 7 that it would report sales that were lower than previously expected of $13.2 billion, give or take $300 million, down from the prior range of $13.8 billion to $14.8 billion. It also lowered its expected gross margin to 62 percent.

Sales in the PC Client group reflect the sentiment of that business at the moment: Revenue was $8.6 billion, flat sequentially and representing a drop of 8 percent year over year. In the server business, the Data Center Group reported sales of $2.7 billion, down 5 percent sequentially and up 6 percent from the year-ago period.

“Intel beat its revised forecasts which is good, but PC success in Q4 will be challenging as it hinges on the success of Windows 8,” says Patrick Moorhead, head of research firm Moor Insights and Strategy and a former executive of Intel rival AMD. “As Intel is the primary supplier to the PC and server marketplace, it ebbs and flows with those markets. PC makers are taking a very cautious approach with inventory which is hurting Intel. Servers were down too, but cloud and HPC are still growing at a very rapid pace for Intel.”

Here’s Intel’s announcement.

Intel Reports Third-Quarter Revenue of $13.5 Billion

SANTA CLARA, Calif., Oct. 16, 2012 – Intel Corporation today reported quarterly revenue of $13.5 billion, operating income of $3.8 billion, net income of $3.0 billion and EPS of $0.58. The company generated approximately $5.1 billion in cash from operations, paid dividends of $1.1 billion and used $1.2 billion to repurchase stock.
“Our third-quarter results reflected a continuing tough economic environment,” said Paul Otellini, Intel president and CEO. “The world of computing is in the midst of a period of breakthrough innovation and creativity. As we look to the fourth quarter, we’re pleased with the continued progress in Ultrabooks and phones and excited about the range of Intel-based tablets coming to market.”
Q3 2012 Key Financial Information and Business Unit Trends (GAAP, unless otherwise stated)

· PC Client Group revenue of $8.6 billion, flat sequentially and down 8 percent year-over-year

· Data Center Group revenue of $2.7 billion, down 5 percent sequentially and up 6 percent year-over-year

· Other Intel® architecture group revenue of $1.2 billion, up 6 percent sequentially and down 14 percent year-over-year

· Gross margin of 63.3 percent, 1.3 percentage points above the midpoint of the company’s updated expectation of 62 percent.

· R&D plus MG&A spending $4.6 billion, unchanged.

· Tax rate of 24 percent, below the company’s expectation of approximately 28 percent.

Business Outlook
Intel’s Business Outlook does not include the potential impact of any business combinations, asset acquisitions, divestitures or other investments that may be completed after Oct. 16.

Q4 2012 (GAAP, unless otherwise stated)
· Revenue: $13.6 billion, plus or minus $500 million.

· Gross margin percentage: 57 percent and 58 percent Non-GAAP (excluding amortization of acquisition-related intangibles), both plus or minus a couple of percentage points.

· R&D plus MG&A spending: approximately $4.5 billion.

· Amortization of acquisition-related intangibles: approximately $75 million.

· Impact of equity investments and interest and other: approximately $75 million.

· Depreciation: approximately $1.6 billion.

· Tax Rate: approximately 27 percent.

· Full-year capital spending: $11.3 billion, plus or minus $300 million.

For additional information regarding Intel’s results and Business Outlook, please see the CFO commentary at: www.intc.com/results.cfm.


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