Wednesday, January 12, 2011

Intel Corporation (NASDAQ: INTC): Q4 Earnings Preview

Intel Corporation (NASDAQ: INTC) is scheduled to release its fourth-quarter earnings after the closing bell on Thursday, January 13, 2011. Analysts, on average, expect the company to report earnings of 53 cents per share on revenue of $11.37 billion. In the year ago period, the company reported earnings of 40 cents per share on revenue of $10.57 billion.

Intel Corporation designs, manufactures, and sells integrated circuits for computing and communications industries worldwide. It offers microprocessor products used in desktops, nettops, workstations, servers, embedded products, communications products, notebooks, netbooks, mobile Internet devices, and consumer electronics, as well as in embedded designs, such as industrial equipment, point-of-sale systems, panel PCs, automotive information/entertainment systems, and medical equipment. In the third quarter of 2010, Intel accounted for 80.4 percent of global microprocessor revenue, according to market research firm iSuppli.

In the preceding third quarter, the Santa Clara, California-based company's net income was $2.96 billion, or 52 cents a share, compared with $1.86 billion, or 33 cents a share, in the year-ago quarter. Revenue surged to $11.1 billion from $9.4 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of 50 cents per share on revenue of $10.99 billion. Gross margin for the third quarter improved to 65.9% from 57.5% a year ago. 

The company has benefited from a rebound in semiconductor demand and Windows 7 PC upgrade cycle. Recently, the Semiconductor Industry Association predicted that worldwide chip sales for 2010 would total $300.5 billion, an increase of 33 percent over 2009 sales. That's more than the group had predicted in June, when it forecast 2010 sales of $290.5 billion. 

At its last earnings call in October, the company said that it expects fourth quarter revenue of $11.4 billion, plus or minus $400 million, and gross margin of 67%, plus or minus a couple percentage points. The company also said that it will invest between $6 billion and $8 billion in its manufacturing operations in the United States, including the construction of a new chip manufacturing facility, or fab, in Oregon. 

Intel's next generation of microprocessors, known as Sandy Bridge, is expected early in 2011. Sandy Bridge, which includes a CPU and a Graphics Processing Unit, could raise the stakes in Intel's rivalry with NVIDIA (NVDA). The Sandy Bridge processor is essentially a CPU that has GPU (graphics processing) integrated within. According to Intel CEO Paul Otellini, the new chips will "change the way people build PCs and buy PCs." 

Intel has largely missed out on the mobile computing wave because its processors are powerful but not as energy efficient as some competing products. For devices such as smartphones, where low power consumption is vital, Intel processors have been eclipsed by those built to the ARM Architecture by companies such as Qualcomm (NASDAQ: QCOM). ARM chips are inside most smartphone and tablets, including those sold by Apple (AAPL).

However, the company is diversifying its sources of revenue. Intel has announced several acquisitions in the past few months. None of the acquisitions are in the PC microprocessor space. The biggest acquisition is McAfee, the software company that produces anti-virus software for consumers and the enterprise. Though Intel expects to eventually be able to apply McAfee's technology to Internet devices and phones, there is no doubt that McAfee will continue to sell its software through all the current channels. Intel acquired a unit of Texas Instruments (NYSE: TXN) that makes cable-modem chips and, more notably, Intel bought the wireless chip business from Germany's Infineon Technologies.

During the quarter in review, the company's board of directors approved a 15% increase to its quarterly dividend. The move brings the quarterly dividend to 18 cents per share, beginning with the dividend that will be declared in the first quarter of 2011.

In terms of stock performance, Intel shares have gained nearly 2 percent over the past year.  

Full Disclosure: None.
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