Chip giant Intel has reported second-quarter earnings that slightly surpassed analysts’ expectations, posting a profit of US$896 million, or 14 cents per share, on revenue of $6.8 billion.
That revenue figure represents an increase of just 1 percent from the first quarter and 8 percent from the year-ago period. In contrast to the slight rise in revenue, earnings per share doubled year over year, up from 7 cents per share in Q2 2002.
Positive, with Caveats
“Intel hinted in its … mid-quarter update that the results we heard yesterday would occur, but Intel has shown a pattern of being conservative in its public comments, and so the degree of positive news yesterday came as somewhat of a surprise,” IDC analyst Shane Rau told the E-Commerce Times.
“I think it’s important, though, to note the reasons that Intel cited for the good news,” Rau added. “It did not cite broad growth factors, like the corporate PC replacement cycle. Instead, it cited pockets of growth, like notebook chips and desktop PC chipsets. I think that this growth suggests that new products — Centrino and Springdale chipsets — and the promotion of these products are getting some traction.”
Also, Rau said, “Looking at comments from Intel’s competitors — AMD has already warned, VIA seems weak…. [This] suggests that Intel’s growth is coming at their expense.”
Also, the company’s year-over-year earnings increase may not be as dramatic as it seems. In last year’s second quarter, Intel took a $106 million charge related to winding down its online services business, plus another $112 million write-off of acquired intangibles, which likely depressed profits.
Emerging Markets Strong
“Overall, the quarter came in slightly better than we expected,” Intel CEO Craig Barrett said. “We continued to see strength in emerging markets, and our Asia-Pacific region set an all-time revenue record.”
“We saw excellent market acceptance for new, more powerful versions of the Pentium 4 processor for desktops and for Intel Centrino mobile technology for notebooks,” Barrett added, noting that the company also introduced its latest Itanium 2 chip during the quarter.
Although the uncertain economy makes predictions difficult, Intel said it expects third-quarter revenue will total between $6.9 billion and $7.5 billion.
Forrester analyst Rob Enderle said the future looks relatively bright for the chipmaker. Executives at Intel are sharpening their focus “and seem to be getting their arms around their marketing problems,” he told the E-Commerce Times. “Currently, they are out-executing their competitors and have enough of a lead to make it unlikely they will lose the lead within five years.”
PC Desktop Dilemma
However, he said, Intel faces some risk tied to the lengthening upgrade cycle. “Their long-term issues have to do with the overall decline of the PC market and their apparent inability to address the core issues surrounding that decline. The desktop life cycle is being pushed out, and it is likely that several of the vendors may realize this and start producing desktops designed for a five-year cycle to gain market share.” Such a shift could hurt Intel’s revenue.
“The perception is that there will be a time when we don’t need desktop processors for connected hardware, or at least [don’t] need them to be as complex or powerful as [they are] today,” Enderle added. “Perceptions lead buying behavior, and this represents Intel’s long-term risk.”