) reported fourth quarter earnings of 50 cents per share that
beat the Zacks Consensus Estimate by 5 cents. The 11.1% surprise
was better than the 8.7% it averaged in the four preceding
quarters. The resultant 5.3% decline in share prices in
after-hours trading more than offset the 2.6% appreciation during
the day, as guidance was not too exciting.
Intel's reported revenue was $13.5 billion, within the
guidance range of $$13.6 billion (+/-$500 million). This was flat
sequentially and down 3.0% year over year.
Weaker-than-expected PC demand stemming from tablet
cannibalization and restrained consumer buying due to tighter
budgets continued in the last quarter. As a result, distributors
worked down inventory of traditional computing devices.
) much-anticipated Windows 8 has been slow to take off because of
the radical changes to the OS.
Revenue by Segment
segment generated 63% of revenue in the last quarter down both
sequentially and year over year due to the PC market concerns
outlined above. This impacted volumes, which were down 4% and 6%,
respectively from the previous and year-ago quarters. The average
selling price (ASP) improved 2% on a sequential basis while
remaining flat with the year-ago quarter.
Intel doesn't expect further reduction in prices, channel
inventories appear lean and new products are poised to gain
momentum. Therefore, 2013 should shape up better than 2012. Low
penetration and a growing per capita income are increasing the
popularity of computing devices in emerging markets, especially
the BRIC countries, which is a longer-term driver for Intel.
was the second largest group with a 21% revenue share. Segment
revenue was up 6.6% sequentially and 4.2% year over year. Intel
continues to gain from the growing importance of cloud computing
and its own new products. As a result, the company was able to
generate ASP growth of 8% on a sequential basis and 5% on a
year-over-year. Economic factors were responsible for sluggish
volumes, although Intel remains well positioned in both storage
The secular growth drivers here are increasing Internet usage
by consumers all over the world and the ongoing move towards
virtualization and cloud computing. The high performance
computing (HPC) segment is the fastest-growing segment within
Intel's data center business.
Other Intel Architecture
segment generated less than 8% of Intel's revenue in the last
quarter, declining 13.5% sequentially and declining 7.0% from
Software and Services
segment contributed nearly 5% of total revenue, up 8.2%
sequentially and 10.0% from last year. In addition to discrete
sales, Intel is taking an integrated approach to McAfee's storage
solutions, with the intention of further differentiating its
segment generated around 3% of revenue, up 20.2% sequentially and
9.2% from the year-ago quarter.
Intel did not provide additional color on its revenue
distribution by geography.
The pro forma gross margin for the quarter was 59.0%, down 530
basis points (bps) sequentially and 643 bps year over year,
better than the guidance of 58% at the mid-point. This was
because of a lower utilization rate, Haswell inventory write-down
(products that were not qualified) and lower volumes in the PC
Client and Data Center segments as offset by a slightly higher
Operating expenses of $4.6 billion were flat sequentially. The
operating margin was 25.0%, down 516 bps sequentially and 964 bps
year over year. The lower gross margin and high R&D as a
percentage of sales impacted both comparisons. SG&A actually
declined slightly on a sequential basis, while increasing
slightly from last year.
The operating margins by segment were as follows: PC Client
33.1% (down 554 bps sequentially), Data Center 47.0% (up 129
bps), Other Intel Architecture -48.6% (down 2,866 bps) and
Software and Services -5.7% (down 634 bps). Operating margins
declined significantly on a year-over-year basis across all major
The pro forma net income was $2.5 billion, or 18.9% of sales,
compared to $3.1 billion, or 23.1% in the previous quarter and
$3.5 billion or 25.3% in the comparable prior-year quarter.
One-time items included intangibles amortization expenses on a
tax-adjusted basis. Accordingly, the fully diluted GAAP net
income was $2.5 billion, or 48 cents a share compared to $3.0
billion, or 58 cents per share in the previous quarter and $3.4
billion, or 64 cents in the year-ago quarter.
Inventories dropped 11.0% sequentially and annualized
inventory turns moving from 3.6X to 4.7X. Days sales outstanding
(DSOs) went from 27 to around 26. The cash, marketable securities
and fixed income trading asset balance at quarter-end was $18.2
billion, up $7.7 billion during the quarter.
Intel has $13.1 billion in long-term debt and $312 million in
short-term debt, resulting in a net cash balance of $4.7 billion.
Cash flow from operations was around $6.0 billion. Important
usages of cash in the last quarter included $2.50 billion on
capex, $1.11 billion on dividends and $1.00 billion on share
Intel guided to revenue of around $12.7 billion (+/-$500
million), down 5.8% sequentially and 1.6% from the Mar quarter of
2012 (well below consensus estimates of $12.9 billion). The gross
margin is expected to be around 58% (+/-2 percentage points).
Total operating expenses are expected to come in at around $4.6
Management also expects to provide for depreciation of around
$1.7 billion and intangibles amortization of around $75 million.
Other income/expense and equity investments are expected to be
-$50 million. Applying the guided annual tax rate of 25%, net
income comes to around $2.0 billion or 16.0% of revenue, which
would be down from both the previous and year-ago quarters.
Intel currently expects the 2013 gross margin to be around
60%, opex $18.9 billion (+/-$200 million), intangibles
amortization $300 million, depreciation $6.8 billion (+/-$100
million) and a tax rate of 25%.The company expects to spend $13.0
billion (+/- $500 million) on capex.
Intel's top line numbers for the quarter were in line with
normal seasonality and management promised steadier ASPs going
forward helped by new products. However, product ramp-up costs
will impact the gross margin this year and if end market demand
doesn't improve, utilization will also be a factor.
At the same time, Intel intends to step up product development
spending to maintain its competitive edge. Therefore, the thing
to look for in 2013 is volume. If Intel's new products are able
to generate much stronger volumes this year, we may see improved
For now, the company remains the leading producer of
microprocessors for the PC market. Its innovative prowess has
ensured that Intel is well ahead of its closest rival
Advanced Micro Devices
). Therefore what affects it mainly is the market itself. Intel's
strategy has been correct here and the company has positioned
itself strongly in emerging markets, from where most of the
growth is expected to originate in the next few quarters.
Intel has also increased focus on the ultra-mobile, ultra-thin
computing segment with its ultrabook concept that has been
), among others. Adoption of new technology is naturally much
slower in an uncertain economy and the ultrabook's success has
been limited accordingly. But 2013 should see some changes as
Haswell ships, possibly bringing Intel's first major success in
the mobile segment.
Until this happens, tablets from
) and others that run on ARM devices will continue to cannibalize
on notebooks, which have been taking share from desktops.
Therefore, Intel's core computing business will remain under
The enterprise segment has for long been a savior for Intel,
but growth rates have slowed down in this segment as well. Intel
should however continue to gain from the ongoing move to cloud
Intel continues to display a strong market position,
technology lead and solid execution, which should help it through
the year. Intel shares therefore carry a Zacks Rank #3
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