Intel's Q1 good enough, company remains upbeat

Summary:CEO Paul Otellini said in a release that the company performed well "amidst market softness" that translated to revenue declines in its PC and data center groups.

Intel's first quarter results avoided worst case scenarios, but its PC and data center revenue both fell compared to a year ago. The company's second quarter outlook was solid.

The chip giant reported first quarter earnings of $2 billion, or 40 cents a share, on revenue of $12.6 billion. Analysts were expecting non-GAAP first quarter earnings of 41 cents a share on revenue of $12.59 billion. Fully reported earnings were projected to be 40 cents so results were in line. Bottom line: Intel's quarter was good enough for those expecting a disaster. 

Preview:  Intel's Q1: PCs, mobile, data center wild cards abound

Going into the quarter, analysts cited a number of wild cards. Intel noted that it had a lumpy quarter. CEO Paul Otellini said in a release that the company performed well "amidst market softness."

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Intel's results were hurt by the following:

  • PC client revenue of $8 billion, down 6.6 percent from a year ago.
  • Data center revenue of $2.6 billion, down 6.9 percent from a year ago.
  • And gross margins of 56 percent, which as well below expectations of 57.9 percent.

Despite being tethered to Windows 8 sales, Intel's outlook for the second quarter was solid. The company projected second quarter revenue of $12.9 billion, give or take $500 million. Wall Street was expecting $12.85 billion for the quarter.

The revenue boost in the second quarter is likely inventory stocking for Intel's Haswell architecture, which is supposed to enable better hardware to support Windows.

For 2013, Intel projected low single digit percentage sales growth.

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In prepared remarks, Intel CFO Stacy Smith outlined the moving parts of the quarter:

The worldwide PC supply chain saw a continued reduction in inventory levels in the first quarter as customers reduced inventory of older generation PCs ahead of the Haswell launch. In addition, our inventories decreased almost $400M from the fourth quarter. Gross margin of 56% was down 2 percentage points from expectations. Increased demand from our customers allowed us to increase production of Haswell products prior to qualification for sale. The result of this was a higher than anticipated inventory write-off which we expect to get back throughout the rest of the year as the product qualifies for sale in the second quarter and starts shipping to our customers. In addition we saw higher than expected excess capacity charges on older generation process technologies. We are taking advantage of the excess capacity on older generation process technologies to take capacity offline and reuse more equipment and space for 14nm and beyond.

 

By the numbers:

  • Intel's architecture group saw first quarter revenue of $1 billion, down 9 percent from a year ago. That unit includes mobile products.
  • R&D and sales and marketing expenses in the first quarter were $4.5 billion, in line with expectations.
  • Intel's inventory in the first quarter was $4.36 billion, down from $4.37 billion a year ago.
  • For the second quarter, Intel expects R&D and sales, marketing and administrative expenses to tick up to $4.7 billion.
  • The company expects $12 billion in capital spending for the year.

The big picture

Intel's first quarter didn't feature any major disasters, but all the questions going into the results remain. Those questions break down like this:

Will Intel's Haswell platform really spur solid hardware for Windows 8? Intel remains hopeful and has the slides to prove it. The problem is consumer and corporate demand for Windows 8.

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Can data center revenue fuel growth for the company? The enterprise is supposed to drive Intel forward. The first quarter showed malaise. It's unclear whether Intel can navigate the hyper scale server movement if ARM takes off in the enterprise.

Can Intel get its mobile game going? This question has been lingering for more quarters than I can count. To date, the answers are elusive.

Topics: Intel, Data Centers, Hardware, PCs

About

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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