Tuesday, July 19, 2011

Intel Corporation (NASDAQ: INTC): Q2 Earnings Preview 2011

Intel Corporation (NASDAQ: INTC) is scheduled to release its second-quarter earnings after the closing bell on Wednesday, July 20, 2011. Analysts, on average, expect the company to report earnings of 51 cents per share on revenue of $12.82 billion. In the year ago period, the company reported earnings of 51 cents per share on revenue of $10.76 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. Intel is the world's largest supplier of microprocessors, the brains of personal computers, with roughly 80% of the global market share.

Intel enjoys significant competitive advantages in its massive R&D capability as well as the financial resources to employ cutting-edge manufacturing technologies. Intel keeps raising processor performance while lowering manufacturing costs. 

In the preceding first quarter, the Santa Clara, California-based company's net income was $3.16 billion, or 58 cents per share, compared to $2.44 billion, or 43 cents per share, in the year-ago quarter. Revenue rose to $12.85 billion from $10.30 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of 46 cents per share on revenue of $11.60 billion.

At its last earnings call in April, Intel said that it expects revenues of $12.8 billion, plus or minus $500 million. Excluding certain acquisition related accounting impacts, the company expects to generate revenues of $12.85 billion, plus or minus $500 million for the second quarter.The gross margin is expected to be around 61% (+/-2 percentage points). Total operating expenses are expected to come in at around $3.9 billion. Management also expects to provide for depreciation of around $1.2 billion and intangibles amortization of around $75 million. Other income/expense is expected to net a gain of around $50 million. Applying the guided tax rate of 29%, net income comes to $2.8 billion, or 22.0% of revenue, which would be down sequentially, but up year over year. For the year, Intel guided to a gross margin of 63% (+/- a few percentage points) and operating expenses of $15.7 billion (+/- 200 million). Intel also said that it expects capital spending for 2011 to be at $10.2 billion, plus or minus $400 million, $1.2 billion higher than its previous expectations. 

Intel saw strong PC chip sales boosted by spending from large companies and emerging markets, especially China and Brazil, from where it gets more than half of its revenue. Recently, Paul Otellini, president and CEO of Intel said that the company is on track for revenue growth of over 20 percent this year.

Intel has loads of excess of cash. Cash holdings are approximately 5% of sales, which is significantly more than the amount the company needs for operations. This excess cash gives Intel the ability to expand research and development, pay out a higher dividend, or finance growth via acquisitions. Intel is now successfully diversifying into software, cellular basebands and embedded processors.

In May, the company approved a 16 percent increase in the quarterly cash dividend, citing strong cash flow due to current and projected revenue growth. Intel has been boosting its dividend for the last five years—now standing at 3.40 percent—among the highest in the high-tech industry.

Intel Corp. is now aiming to accelerate a stalled entrance into the market for tablet chips.  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 (NASDAQ: AAPL). The company’s Atom microprocessor dominates netbooks but has not made a significant impact in the smartphone or tablet markets. Intel hopes to thwart this challenge with new “3-D” transistors that have performance and power-consumption benefits.By the end of 2011 Intel will be producing a Tri-Gate 3-D transistor technology in 22nm. This is directly aimed at ARM and Marvel's dominance of the mobile device market. Intel devices will offer half of the power of existing devices with the same capabilities thereby extending battery life. It will also blunt ARM's attempt to enter the notebook market with the help of Microsoft.

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