Intel (INTC) slightly beat consensus: Q1 revenue was slightly ahead ($9.67 billion vs. $9.63 billion consensus). EPS was $0.25, but asset impairment, restructuring charges, and tax rate were higher than expected, so operating EPS was stronger than consensus. June revenue outlook in-line, full-year margin outlook slightly better than expected. Stock up strong in aftermarket.
- Microprocessor and chipset businesses as expected. Microprocessor units lower sequentially, with ASP flat.
- NAND revenue flat as significant price declines offset unit growth.
- Gross margin: 53.8%, slightly below consensus of 54%.
- Tax rate slightly higher than expected: 33.5% vs. 31%, and restructuring and asset-impairment charges $329 million vs. $100 million estimate. Operating income stronger than appears.
- $2.5 billion share repurchase reduced share count
June revenue guidance: In line with consensus.
Full-Year guidance: No FY revenue guidance, but gross margin guidance of 57% slightly better than expected. Intel maintains previous margin guidance despite drop in NAND pricing that whacked gross margin in Q1.
We will cover the conference call live at 5:30PM / 2:30PM
CONFERENCE CALL NOTES (Jonathan Kennedy reporting):
5:30: Call begins… Customary introduction, instructions, outlines, disclaimer etc.
5:35: “Q1 marked very good start.” Improvement allowed large dividend. Strong demand for 45 nanometer products. All region grew, North America stood out because of strong server demand. Server business particularly strong and recorded record revenues. All segments “healthy and balanced.”
5:37: Transition to mobility continues. Unit shipments up. Shipment crossover from desktop PCs to notebook PCs to happen this year, not next.
5:40: NAND business: “making decisions” to mitigate oversupply issue. “We entered NAND to make money, and we will continue to make decisions with this in mind.”
5:45: Three important trends… Competitive position of core business superb. Benefits of 45 nanometer process technology “tangible.” Product costs declined, supports gross margin expansion. Momentum in new growth initiatives. Progress in product development.
5:47: ASPs approximately flat. Server microprocessor segment particularly strong. All geogrpahy segments experienced y/y growth. North America showed strongest growth. 45 nanometer server products strongest.
5:50: Taxes higher (33.5% vs 31%) because more products created in “higher-tax jurusdictions”
5:52: Outlook for Q2: planning for revenue between $9 and $9.6 billion. Flash Revenue to decline by $200 million from quarter to quarter. Gross margin for Q2 expected to be 56%… lower chipset inventory write-offs.
5:54: Spending for R&D and MG&A in Q2 between $2.8 and $2.9… restructuring and asset-write-offs to be $250 million.
5:55: Beyond Q2: Margins to improve, will maintain full-year estimate for gross margin at 57%. Strength in core business offsets weakness in NAND. R&D spending will be $6 billion, MG&A will be $5.5 billion. Taxes will be 33% for remaining quarters in 08.
5:58: Q&A begins… Deutsche Bank analyst asks about general demand environment. Wants colour on whether demand is strengthening or weakening, whether ASPs will go up or down… Answer: everything is flat, environment normal.
6:04: Bank of America analyst asks about outlook for core business in Q2, and what’s driving it… Answer: A variety of things, primarily netbook products. 75% of revenue not in the US. During difficult economic times, companies turn to information technology to improve productivity. Intel in good position.
6:08: Citi analyst asks for clarification on Macro environment, specifically on Europe… Answer: No signs of weakness. 8% Y/Y growth in Europe.
6:11: UBS analyst asks about North American strength. How much is attributed to pent up demand for 45 nm. Wants colour on strength due to weakness in financial services… Answer: financial services weren’t weak, looking for greater transaction speed.
6:19: Goldman analyst asks for quantification of how NAND is dragging down profits… Answer: More than we would have liked. Can’t say more.
6:22: Goldman analyst asks why management expects margins to improve in second half… Answer: strength in core business… etc…
6:25: JPMorgan analyst asks about utilization rates… Answer: Utilizations are in “sweet spot,” “not too hot, not too cold.”
6:26: Lehman analyst asks about mobility and why operating margin decreased… Answer: More resources allocated to sector and increased advertising budget. It’s the “price of success.”
6:30: Lehman analyst asks whether battery fire issue will affect anything… Answer: no.
6:35: Closing remarks, call ends…
Intel is expected to meet its own reduced expectations. The stock is down 20% since the Q4 release, after a worldwide glut of NAND flash memory chips (used inside cameras and other portable devices) knocked down average selling prices and forced the company to revise its gross margin expectations down from 56% to 54%.
Analyst channel checks suggest that the problem was limited to NAND sales and that PC and mobile demand remains solid. Analysts also believe that the AMD blow-up allowed Intel to gain share, especially at the high-end of the market. The company’s forward guidance and commentary with regard to the macro-economic environment will obviously be critical.
- Revenue: $9.63 billion
- Gross Margin: 54% (53%-55% range)
- EPS: $0.25
- Outlook: June: $9.3 billion / $0.28 2008: $39.8 billion / $1.29 2009: $42.7 / $1.53
- June: $9.3 billion / $0.28
- 2008: $39.8 billion / $1.29
- 2009: $42.7 / $1.53
Our Intel Financial Analysis Spreadsheet is here.
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