Intel earnings up, future uncertain

Net income for the quarter was US$2 billion, or $0.35 per share, up from $1.8 billion, or $0.30 per share, in the same period last year. Analysts polled by Thomson Financial had expected $0.34 per share.

Intel’s net revenue was $10.2 billion. Sales in both its microprocessor and chipset units drove revenue for the quarter, which ended Sept. 27.

The third quarter was the first full period in which Intel sold its Atom microprocessors and chipsets for low-cost PCs, and sales of the chips brought down the average selling price of microprocessors for Intel. Overall, the average selling price was lower sequentially, but excluding Atom shipments, the average stayed flat, Intel said.

The results included a number of charges, such as an impairment charge for the Numonyx investment and a restructuring charge.

Intel warned that it is difficult to know how the current economic environment may affect its business in the coming months. The chip giant plans to release a mid-quarter business update on Dec. 4. But for now, it is expecting revenue for the fourth quarter to be between $10.1 billion and $10.9 billion. The fourth quarter will include a charge related to the recent decision by Intel and Micron to close their joint production of NAND flash memory from an Idaho facility.

Executives discussing the earnings report on a conference call expressed concern about the potential effects of the financial meltdown, but they were also optimistic. “This is not the post-dotcom kind of downturn,” said Paul Otellini, Intel’s president and CEO. After the dotcom downturn around the year 2000, demand for computers was low in part because there were so many available on eBay, offered by companies that had shut down, he said. “That skewed demand,” he noted.

This time, the downturn hasn’t created that strong secondary market. Also, emerging markets are a new sector that remains strong, he said. “The emerging market pattern of more people coming into computing is unique now compared to other downturns, because the cost of computing has come down relative to their income levels,” he said.

Also, demand continues to come from companies that are building data centers, particularly companies looking for efficiencies there. “I’m of the opinion that technology will do well during this downturn, for the simple fact that we sell tools of productivity,” he said.

Still, going into the fourth quarter, Intel expects corporate buyers to continue to be cautious when they consider IT investments. Demand from consumers has also lightened up, but Intel continues to see a “healthy” interest in notebooks and netbooks, Otellini said. Demand overall has been very mixed, with some customers and channels seeing little or no impact from the economic trouble and other sectors expressing worries about the effects. “As we add it up, we don’t know how much of that worry will manifest itself into reality and how much will dissipate,” he said.

Otellini estimated that the financial services sector, which has been particularly hard hit, makes up 15 percent to 18 percent of Intel’s server business. If the segment continues to struggle, that’s a small enough portion of Intel’s business that the chip maker shouldn’t be hurt too drastically, he said.

Intel’s results come just a week after competitor AMD said it plans to split into two companies, one to design chips and one to make them, in an effort to compete more effectively with Intel. AMD, which plans to release its third-quarter earnings report on Thursday, has reported losses in the past seven quarters.

Intel executives downplayed the effect they think will come from AMD’s announcement. “Nothing has changed,” Otellini said. Ultimately, someone has to raise capital, build factories, develop technologies and sell them to companies that sell products to customers, he said. “So, the food chain hasn’t really changed,” he said.

Owning both design and manufacturing is a competitive advantage for Intel, said Stacy Smith, Intel’s chief financial officer. “It lets us bring low-power, low-cost, high-performance products to market,” he said.

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