/>
X
Business

Intel shares climb on Q2 news

Shares of Intel Corp. soared Wednesday amid signs that the chipmaker's travails may be nearing an end.
larry-dignan-eic.jpg
Written by Larry Dignan, Contributor on
Shares of Intel Corp. soared Wednesday amid signs that the chipmaker's travails may be nearing an end.

Investors responded to the company's second quarter earnings late Tuesday as well as an announcement that it had cut its inventory costs. Intel had second quarter earnings of $1.2 billion, or 66 cents a share, on sales of $5.9 billion. First Call Corp. consensus was 68 cents a share.

Earnings for the quarter declined 29 percent from a year ago and was off 8 percent from first quarter earnings of $1.3 billion. In the second quarter a year ago, Intel reported earnings of 92 cents a share.




Intel's latest earnings put all the Chicken Littles to flight.





Intel (Nasdaq:INTC) shares initially slumped in aftermarket trading yesterday and then gained as Wall Street had a chance to digest the the numbers.

The source of confusion was a $120 million inventory write-down that shaved a few points from Intel's gross margins. "We had a higher than normal inventory write-down that hurt margins as we tightened cost controls," said Adam Bryant, Intel chief financial officer, in a conference call.

Intel writes down some old inventory every quarter, but the $120 million was larger than usual. Therefore, Wall Street analysts were treating the write down as an unoffical charge.

Some analysts argued that because of the write-down, Intel actually beat the First Call consensus forecast of $0.68. Several Wall Street analysts changed or reiterated ratings on Intel shares following the results.

"If you back out the inventory write-down, Intel earnings were in line at 70 cents a share," said Ashok Kumar, an analyst with Piper Jaffray. "Intel has been tightly controlling operating expenses. The fact that expenses haven't increased is incredible for a company this size."

Intel has had to watch expenses closely because sales have been flat.

Flat sales
Second quarter revenue was down $100,000 from sales of $6 billion in the same quarter a year ago. First quarter revenue was $6 billion.

For the third quarter, Intel officials were predicting flat revenue, but sales growth in the second half, which is seasonally strong.

Geographically, Intel said revenue in the Americas and Japan was up from the first quarter, but Asia-Pacific sales were flat. Europe revenue dipped in the second quarter.

Unit shipments of microprocessors were down slightly from the first quarter, motherboard shipments were flat, and embedded processors fell. Flash memory units shipped in the quarter were up and shipments of Fast Ethernet connections, hubs, and switches were up "significantly."

Asian markets mixed
"Japan actually grew for the first time in a year," said Paul Otellini, executive vice president for Intel. Otellini added that the Asia markets are a mixed bag. Intel had record unit shipments in China, but other areas were weak.

"I don't see signs of a full scale recovery by any stretch," said Otellini.

And until Asia improves, Intel will be watching expenses.

Intel said it has extended its deadline for eliminating 3,000 positions by one quarter until the end of the year. Intel already reduced headcount by approximately 750 people, excluding the 1,800 employees added from the acquisition of Digital Equipment Corporation's semiconductor manufacturing operations.

Wall Street was waiting

While the numbers were disappointing, Wall Street was clearly waiting for Intel's outlook. The company said it expects flat revenue in the third quarter compared to the second quarter. Second half sales, however, are expected to be larger than the first half.

Intel added that gross margin will be up a "couple of points" in third quarter, compared to 49 percent in the second quarter.

Expenses in the third quarter will be about 3 percent to 5 percent higher than second quarter expenses of $1.3 billion.

Capital spending, a hot topic for chip equipment makers, will be about $4.5 billion to $4.7 billion for the year, flat with 1997.





Editorial standards

Related

I made a huge Apple Watch mistake
Scratches, scratches, scratches!

I made a huge Apple Watch mistake

I put the Apple Watch Ultra through a Tough Mudder: Here's how it held up
aw-ultra-tough-mudder-7

I put the Apple Watch Ultra through a Tough Mudder: Here's how it held up

XeroLinux could be the most beautiful Linux desktop on the market
The default XeroLinux desktop.

XeroLinux could be the most beautiful Linux desktop on the market