Intel Delivers, Sort Of

Intel (INTC) reported earnings at $0.26 EPS and $9.7 Billion in revenues.  It was expected to post $0.25 EPS & $9.45 Billion, although whisper numbers had this a tad higher than estimates since the company didn’t offer any guidance or warning other than what it telegraphed with its last quarter. 

The raw number was $0.30 for EPS outside of options, but there is a gain from the sale of certain assets of the company’s communications and application processor business to Marvell Technology Group partially offset by impairments, including an impairment for the related decision to place the company’s Fab 23 facility in Colorado Springs, Colo., up for sale. The gain and impairments resulted in a net increase to EPS of approximately 2.5 cents. Fourth-quarter restructuring charges related to the company’s structure and efficiency program were in line with the company’s expectations and decreased EPS by approximately 1.5 cents.

Fourth-quarter gross margin was 49.6 percent and the company used $150 million for share repurchases.  The company ended 2006 with a workforce of 94,100 people, slightly below the target of 95,000 people. The company is on track to generate spending and manufacturing cost savings of approximately $2 billion in 2007 exclusive of restructuring costs.

Intel is marginally raising guidance for the coming quarter if you use the mid-point of the range, but there is no guidance on revenues or earnings yet for the fiscal year:
    * Revenue: Expected to be between $8.7 billion and $9.3 billion.
    * Gross margin: 49 percent, plus or minus a couple of points.
    * Spending (R&D plus MG&A): Between $2.6 billion and $2.7 billion. In addition, the company expects a first-quarter restructuring charge of approximately $50 million.

2007 Outlook
    * Gross margin: 50 percent, plus or minus a few points.
    * R&D: Approximately $5.4 billion.
    * MG&A: Approximately $5.3 billion.
    * Capital spending: $5.5 billion plus or minus $200 million (45nm process technology spending included)

INTC shares were down most of the day, but managed to close in positive territory up 0.7% at $22.30.  At the close of trading it looks like options traders were braced for a move of $0.45 to $0.50 in either direction.

INTC initially popped more than 2% on the news, but as often happens the stock whips around in after-hours while everyone tries to digest their numbers and while everyone tries to determine if it is a real exceeding or not.  Shares are now looking down 0.9% from the $22.30 close, but you’ll have to see how it reacts during their conference call and to the analyst calls in the morning before saying they truly pleased or failed to please.

Jon C. Ogg
January 16, 2007