Intel first quarter carried by servers, enterprise demand

Worries about Intel appear to be misplaced. Intel reported stronger-than-expected first quarter results as demand for its server chips fueled the company.

Intel reported stronger-than-expected first quarter results as demand for its server chips fueled the company.

As expected, Intel's quarter was a bit messy. The first quarter included a charge for the Sandy Bridge chipset problems and Intel results included Infineon and McAfee, two recently acquired companies. Overall, however, Intel's results show that it weathered the Japan earthquake well in the quarter.

The chip giant reported earnings of $3.2 billion, or 56 cents a share, on revenue of $12.8 billion. Non-GAAP earnings were 59 cents a share. Wall Street expected Intel to report earnings of 46 cents a share on revenue of $11.59 billion (see preview).

The divergence between estimates and Intel's results may mean that Wall Street didn't account for McAfee and Infineon and perhaps overlooked the fact the first quarter had 14 weeks. In any case, Wall Street was way off on Intel's quarter. It also remains to be seen whether Intel's quarter was driven by OEMs who were stocking up on Sandy Bridge chipsets to catch up on inventory. Analysts said Intel may be seeing demand pulled forward.

Overall though, Intel had a strong quarter. Intel CEO Paul Otellini said that the company saw "double digit annual revenue growth in every major product segment and across all geographies." On a conference call, Otellini made the following points:

  • Consumer demand in developing markets was soft.
  • Emerging market demand was strong.
  • A quick recovery on the Sandy Bridge chipset issue allowed production to ramp faster than expected.
  • Intel didn't see any unusual backlog fluctuations due to the Japan earthquake.
  • Inventory levels remain healthy. In the first quarter, PC makers replenished fourth quarter stock with Sandy Bridge-based products.
  • Intel sees $10 billion in revenue from server, storage and networking gear. The data center buildout continues.

Otellini added:

Within the Data Center Group, the storage business increased 45% sequentially and was up 65% from a year ago. During the quarter, we launched Sandy Bridge Xeon platforms for the single socket market, and early demand for this product has been very strong. Looking ahead, we are very bullish about our data center business and expect it to be a major growth driver for years to come.

As for the outlook, Intel projected second quarter revenue of $12.8 billion, give or take $500 million. Gross margins will be 61 percent or so. For 2011, Intel projected gross margins of 63 cents a share along with capital spending of $10.2 billion, give or take $400 million.

By the numbers for the first quarter:

  • Intel saw Asia-Pacific revenue of $7.26 billion, up from $5.88 billion a year ago. Japan revenue was $1.22 billion, up from $1.1 billion a year ago. Americas revenue was $2.7 billion, up from $1.9 billion. Europe revenue was $1.64 billion, up from $1.4 billion a year ago.
  • PC group revenue was $8.62 billion, up from $7.37 billion a year ago. Operating income was $3.54 billion.
  • Data center revenue was $2.46 billion, up from $1.87 billion a year ago. Operating income was $1.22 billion.
  • Other Intel architecture---mobile, netbook and tablet chips, embedded and communications chips---delivered revenue of $1.15 billion with an operating loss of $36 million.
  • Software and services revenue was $240 million with an operating loss of $52 million.

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