Intel Earnings Top Forecasts
Intel's shares fell Wednesday morning after the semiconductor superpower turned in stronger-than-expected earnings but indicated flat growth.
Looking ahead, Intel (INTC) said its fourth-quarter revenue will probably be "up slightly" from its third quarter, but expenses are likely to be 3 to 5 percent higher.
Fourth-quarter gross margins are expected to be flat or slightly higher than the third quarter's 53 percent, an estimate that didn't encourage many analysts.Shares slipped 7/16 to 83 1/8.
The world's biggest independent chip-maker earned $1.6 billion, or 89 cents a share. The average estimate of analysts surveyed by First Call was for profits of 80 cents a share, boosted after the company pre-announced a sequential sales increase of 8 to 10 percent last month.
Intel also said it will cut more jobs, slashing 675 manufacturing positions in Hudson, Mass., and 500 to 700 jobs in Puerto Rico in 1999. That's on top of previously announced plans in progress to cut 3,000 jobs.
In the year-ago period, Intel earned $1.6 billion, or 88 cents a share. Revenue rose to $6.7 billion in its 1998 third quarter, its highest ever, the company reported. That compares with 1997 revenue of $6.2 billion.
Ahead of the company's earnings, analysts said the stock's potential going forward will hinge on the company's outlook for 1999.
"We expect solid sequential revenue growth and guidance of 5 or 6 percent growth in the fourth quarter," said Ken Perlman, analyst at CIBC Oppenheimer.
"We expect a strong quarter and strong outlook, driven by stronger units due primarily to recovery from the inventory snapback," Goldman Sachs analyst Joe Moore told clients.
In addition, Intel said it expects to finish 1998 with all microprocessors manufactured with 0.25 micron process technology. Production of 0.18 micron process technology will start in the first half of 1999, the company reported.
An uptick in demand has lent positive momentum to Intel and other chipmakers recently, as PC makers rebuild inventories following a correction earlier thiyear. However, some analysts are concerned that the pickup in processor orders isn't apparent in end markets.
"Inventory was down sharply, and now it's up sharply. These are pretty big numbers and we don't see the end market growing at the same rate," cautioned Perlman.
While the third-quarter number will likely drive short-term gains, analysts agree Intel's fourth-quarter and 1999 outlook will be the Street's primary focus. "Intel's tone will be important. People are looking for them to express some belief that the PC market and the economy aren't going into the toilet," Perlman said.
Given its exposure to global economies and the health of the PC industry, Perlman believes Intel could express some caution going forward. Most analysts remain uncertain about the company's prospects beyond the fourth quarter amid falling average selling prices and competition from lower-cost rivals.
"Things could fall apart in the first and second quarter next year, proving that this is just a seasonal upturn with no follow-up," Perlman said.
Many analysts say this uncertainty explains the stock's inability to break out of its narrow trading range. Intel shares have hovered between $80 and $90 for the past several months. Analysts expect little growth in 1999, as fiscal 1999 estimates range from $3.25 to $4.00, only marginally higher than the fiscal 1998 consensus of $3.12 a share.
"Our $3.95 [estimate] for 1999 is unlikely to change materially, and we temper our enthusiasm about near-term strength as we continue to think that 1999 will be another mediocre growth year for units," said Goldman Sachs' Moore.
The company said its revenue rose 9 percent to $6.73 billion from $6.15 billion.
A consensus of securities analysts surveyed by First Call Corp. had predicted Intel would report earnings of 80 cents per share.
Written By Tiare Rath and Binti Harvey