Intel Earnings Hold Strong Against The Competition

The company notes average selling prices for the quarter held up despite a price war with AMD.
Intel posted solid results in the first quarter, avoiding the negative impact from falling prices and slower sales that have plagued its main competitor in the PC and server market.

The chipmaker on Tuesday reported a 19% increase in earnings for the quarter ended March 31 to $1.61 billion, or 27 cents a share, compared with $1.36 billion, or 22 cents a share, for the same period a year ago. A good portion of the increase was due to an injection of $300 million, or 5 cents a share, which had previously been set aside for taxes.

Revenue, however, wasn't as lucky, dropping 1% to $8.85 billion from $8.94 billion a year ago. Gross margin for the quarter rose to 50.1% from 49.6% in the previous quarter, but was considerably less than the 55.1% a year ago.

Overall, Intel appears to be doing better this year than its rival Advanced Micro Devices. The two companies have been in a price war since last April. AMD this month blamed lower unit sales and falling average selling prices for an expected $100 million drop in year-to-year revenue in the first quarter to $1.23 billion. Wall Street analysts had expected AMD to report $1.55 billion.

As a result of the sales drop, AMD planned to reduce capital expenditures by $500 million, and "significantly reduce" discretionary expenses and limit hiring to key positions. The company was scheduled to release first-quarter results on Thursday.

Intel, on the other hand, said its "solid financial results" were due to the fact that the average selling prices for the quarter held up despite intense competition. In addition, the company has been cutting costs through a restructuring that included reducing its workforce by 11,000, or 11%, to 92,000 employees.

During a conference call with analysts, Paul Otellini, president and chief executive of Intel, said the company expected to continue to outpace the competition the rest of the year, despite AMD's plans to ship in midyear a new high-performance chip, code-named Barcelona, with four processing cores. Intel currently has a quad-core chip that's actually two integrated duo-core chips. "I'm assuming we will be able to maintain our competitive lead in all segments, all year," Otellini said.

Due mostly to stronger product offerings from AMD in the first half of the year, Intel lost market share in 2006 in the server and consumer markets, while AMD gained, according to Gartner. While declining to forecast market share, Otellini made it clear he didn't expect last year's trend to continue. "We'll leave the market share forecasting to the forecasters, but I'm pretty well convinced that when the data rolls in a week or so, we'll be very pleased with the answers," he said.

Intel's big performance and energy efficiency boosts in processors is expected to occur next year when it starts to release products built with its 45-nanometer manufacturing process, which increases the number of transistors that can be packed on a chip.

For the second quarter, Intel expects revenue to be between $8.2 billion and $8.8 billion, with gross margin about 48%. The company, however, expects an average margin for the year of 51%.

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