Intel's outlook quells worries; Aims to be a tablet player

Summary:CEO Paul Otellini said that the company saw solid enterprise demand and projected "healthy worldwide demand for computing products of all types."

Updated: Intel allayed concerns about its third and fourth quarters Tuesday as CEO Paul Otellini said that the company saw solid enterprise demand and projected "healthy worldwide demand for computing products of all types."

The chip giant reported third quarter net income of $3 billion, or 52 cents a share, on revenue of $11.1 billion, up 18 percent from a year ago (statement, preview). Intel had warned that revenue would fall short of its previous expectations due to weakness in consumer demand. Wall Street was looking for earnings of 50 cents a share on revenue of $10.99 billion.

Based on Intel's figures, consumer demand appears to have bounced back somewhat in September. Analysts had said demand appears to have stabilized for PCs and laptops. Intel CFO Stacy Smith said:

We achieved record quarterly revenue of $11.1B despite a weaker than expected consumer market segment. Demand strength in emerging markets and a robust enterprise market segment led to record microprocessor units.

For the fourth quarter, Intel projected revenue of $11.4 billion, give or take $400 million. That compares with Wall Street estimates for $11.32 billion. Gross margins for the fourth quarter were projected to be 67 percent, better than expectations of 65.7 percent. That outlook doesn't include the acquisition of McAfee, which is expected to close sometime in the fourth quarter.

On a call with analysts, CEO Paul Otellini painted a bright picture for the 4th quarter and 2011. Among the segments worth noting, he highlighted the SmartTV category, specifically Google TV products running on Intel's Atom processor and citing it as an example of how the company "can bring Intel architecture to not just PCs but any device that connects to the Internet," including digital signs, in-vehicle infotainment, retail and ATM offerings.

He also paused to address "new categories where Intel has little presence, specifically tablets." He called the segment "exciting" and credited Apple for doing "a wonderful job at reinventing the category." Like netbooks a few years ago, tablets represent a new form factor for computing, he said. And yes, they're surely impact PC sales as some will choose to spend their limited funds on a tablet over a PC.

But there are two things to consider:

First, he said, there was some impact on PC sales when tablets arrived but, years later, both netbooks and PCs have seen growth and the company is projecting double-digit growth for PCs in 2011. Second, Intel is positioning itself for a role in the tablet game, calling it a "new computing segment where we can participate alongside our growing PC business... we will utilize all assets at our disposal to win this segment. We are deeply engaged with a number of partners to bring to market innovative tablet solutions."

Finally, he said the company is ramping up production of the new microprocessor architecture, code-named Sandy Bridge, this quarter as it prepares for a first quarter system launch.

By the numbers for the third quarter:

  • Average selling prices for Intel's chips were flat from the second quarter and up "significantly" from a year ago. Think Xeon server chips.
  • Inventory was at "healthy levels."
  • Gross margins for the third quarter were 66 percent, in line with revised expectations.
  • Atom processor revenue was down 4 percent from the second quarter to $396 million. That sequential decline is likely to raise a lot of questions about whether tablets are stealing netbook sales.
  • Revenue for Asia-Pacific was $6.4 billion, or 58 percent of sales. Americas revenue was $2.24 billion, or 20 percent of sales. Europe sales were $1.33 billion, or 12 percent of sales. Japan revenue was $1.13 billion, or 10 percent of sales.
  • PC group revenue was $8.05 billion, up from $7.06 billion a year ago. Operating income was $3.44 billion, up from $2.25 billion a year ago.
  • Data center revenue was $2.18 billion, up from $1.67 billion a year ago. Operating income was $1.07 billion, up from $627 million a year ago.
  • Quarterly revenue per employee was $136,000.

Overall, the reaction to the results was muted with shares slightly higher in afterhours trading. Here's the year in Intel shares.

Topics: Enterprise Software, Banking, Intel


Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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