Truth about Intel’s Earnings

Intel reported its earnings yesterday, and while most of the media reported that it was not such a bad quarter, I don’t think there is much good news left for this company. As Businessweek earlier pointed out that things are getting increasingly tougher for Intel, and this quarter is yet another sign. With the help of Raymond James analyst Ashok Kumar, I managed to cut through the cruft and want to highlight three basic points about Intel’s quarter.

  • Intel reported revenues of $8.47 billion, which are right in the smack middle of a revised estimates. Previous estimates were expected to be between $8.6 billion to $9.2 billion. In other words, the company is slowing much more rapidly than it likes to admit. Over past four quarter, growth was 20% and this quarter, 8%.
  • Now lets take a gander at the earnings. Earnings came in at around 30 cents a share, or as company claimed, 11% growth year-over-year. Take out 4 cents a share of tax benefits, and you are left with a number that is below consensus estimate of 27 cents. And we know how accurate the analysts are. They take the data companies give them, and basically pass it off as their own analysis. I think you might be looking at a company that missed its own targets.
  • Gross margins declined 370 basis points quarter-over-quarter to 55.7% on underutilization charges, weaker product mix, and inventory reserves. And the processor segment revenues are down 7% from the peak levels in December 2003 and hardly qualify as an inventory build. Now this is what pays for the adventures, or perhaps misadventures in communications and digital home and all the other crap, Chipzilla wants to peddle. It is just a reflection of a maturing industry with plateauing and now decelerating growth rates.

Ashok points out that “the corporate upgrade cycle is largely behind us. The U.S. consumer, the buyer of last resort, is weakening, with no likely offset. With uncertain economic outlook in key PC markets – U.S., Japan, Germany and China – demand is likely to remain lackluster next year.” I think it is time for Intel to start cleaning house. Where is Andy “The Paranoid” Grove when you need him.


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