Earnings Per Share 27 Cents
SANTA CLARA, Calif., July 13, 2004 - Intel Corporation today announced second-quarter revenue of $8.05 billion, approximately flat sequentially and up 18 percent year-over-year.
Second-quarter net income was $1.8 billion, flat sequentially and up 96 percent year-over-year. Earnings per share were 27 cents, up 4 percent sequentially and up 93 percent from 14 cents in the second quarter of 2003.
"Intel continued to post strong year-over-year results in the second quarter as our microprocessor business followed seasonal trends and our communications business grew nicely, led by flash memory," said Intel CEO Craig R. Barrett. "We had a notable quarter with respect to new product launches with the introduction of 90 nm processors for mobile and the enterprise market segment along with our Grantsdale chipset for the desktop which delivers some of the most significant PC platform enhancements in a decade. Looking to the second half, we will use our investments in leading-edge capacity to drive growth in our core microprocessor business and expand our presence in chipsets, flash and other communications products."
Intel's second-quarter results included a previously disclosed $62-million reversal of previously accrued taxes primarily related to the closing of a state income tax audit, as well as an adjustment to the effective tax rate. These items increased second-quarter earnings-per-share by 1.7 cents. Intel's first-quarter results included a legal settlement charge that reduced earnings per share by 1.7 cents.
BUSINESS OUTLOOK
The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. Please see the Risk Factors Regarding Forward-Looking Statements in this release for a description of certain risk factors that could cause actual results to differ, and refer to Intel's annual and quarterly reports on file with the Securities and Exchange Commission (SEC) for a more complete description of the risks. These statements do not include the potential impact of any mergers, acquisitions, divestitures or other business combinations that may be completed after July 12.
** Revenue in the third quarter is expected to be between $8.6 billion and $9.2 billion.
** Gross margin percentage in the third quarter is expected to be approximately 60 percent, plus or minus a couple of points. Intel's gross margin percentage varies primarily with revenue levels, product mix and pricing, changes in unit costs and inventory valuation, capacity utilization, and the timing of factory ramps and associated costs.
** The gross margin percentage for 2004 is now expected to be 60 percent, plus or minus a couple of points, as compared to the previous expectation of 62 percent, plus or minus a few points. The company expects faster growth in products such as flash memories, chipsets and motherboards that have lower margins. In addition, Intel expects microprocessor margins to increase at a rate slower than previously expected due to a slight reduction in microprocessor average selling prices and a slower than expected reduction in microprocessor unit costs.
** Expenses (R&D plus MG&A) in the third quarter are expected to be approximately $2.5 billion. Expenses, particularly certain marketing- and compensation-related expenses, vary depending on the level of revenue and profits.
** The R&D spending expectation for 2004 is unchanged at approximately $4.8 billion.
** The capital spending expectation for 2004 is unchanged at between $3.6 billion and $4.0 billion.
** Gains from equity investments and interest and other in the third quarter are expected to be approximately $50 million.
** The tax rate for the third quarter is now expected to be approximately 31 percent, as compared to the previous expectation of approximately 32 percent, primarily due to an increase in the estimated tax benefit for export sales. The tax rate expectation is based on current expected income and assumes Intel continues to receive tax benefits for export sales. The tax rate may be affected by changes in tax law, the closing of acquisitions or divestitures, the jurisdiction in which profits are determined to be earned and taxed, the resolution of issues arising from tax audits with various tax authorities, and the ability to realize deferred tax assets.
** Depreciation is expected to be between $1.1 billion and $1.2 billion in the third quarter and approximately $4.6 billion for the year.
** Amortization of acquisition-related intangibles and costs is expected to be approximately $40 million in the third quarter and approximately $175 million for the full year.
SECOND-QUARTER REVIEW AND RECENT HIGHLIGHTS
Financial Review
** The gross margin percentage for the second quarter was 59.4 percent, below the revised expectation of between 60 percent and 61 percent due to an unanticipated $38-million charge for a chipset manufacturing excursion that occurred late in the quarter and revenue being slightly below the midpoint of the updated range.
** Gains from equity investments and interest and other in the quarter were $39 million, below the previous expectation of approximately $60 million, primarily due to higher than expected impairments.
** The effective tax rate for the quarter was 27.4 percent including the $62-million reversal of previously accrued taxes and an adjustment for an increase in the estimated tax benefit for export sales.
** Inventory levels grew by approximately $427 million during the quarter, with approximately half of the increase coming from microprocessor inventories, and the balance primarily from flash memory and chipset inventories.
Key Product Trends (Sequential)
** Intel Architecture microprocessor units were lower. The average selling price was just below the first-quarter level.
** Chipset units were higher.
** Motherboard units set a record.
** Flash memory units were significantly higher.
** Connectivity product units set a record.
Intel Architecture Business
During the quarter, Intel introduced 22 microprocessors built on 90 nm lithography and 300 mm wafers, as well as the first chipsets using the company's 130 nm technology. The introductions bring new microprocessor and platform technology to a wide range of desktop, notebook, workstation and server systems.
For the desktop, Intel introduced a new family of chipsets designed to help make home PCs more entertaining and business PCs more productive and secure. Formerly code-named Grantsdale and Alderwood, the Intel® 915 G/P and 925X Express chipsets deliver some of the most significant PC platform enhancements in a decade, including support for high-definition video, 7.1 surround sound audio and dual displays. Intel also introduced six Pentium® 4 processors with Hyper-Threading (HT) technology that can be used with the new chipsets to help users better enjoy digital music, photos, videos and games on the PC. The company also introduced four Celeron® D processors for value desktop systems.
In mobile, the company launched new Intel® Pentium® M processors designed to boost the performance of wireless-enabled notebooks based on Intel® Centrino™ mobile technology. Formerly code-named Dothan, the processors include new design features such as increased on-die cache memory that enhance the way wireless notebook users work, learn, play and communicate. The company also introduced several Mobile Intel® Pentium® 4 processors for desktop-equivalent notebooks and a Celeron® M processor for value notebooks.
For the enterprise, Intel introduced new Intel® Xeon® processors, formerly code-named Nocona, which together with the Intel® E7525 chipset bring new capabilities and performance levels to workstations. The platforms support HT Technology, an 800 MHz system bus, PCI Express graphics and I/O, DDR2 memory, 64-bit memory extension technology for working with data sets greater than 4 GB, and Demand Based Switching with enhanced Intel® SpeedStep® technology for lower power consumption. Server platforms based on the new Intel Xeon processors are expected to be introduced during the third quarter.
The Itanium® 2 processor continued to gain acceptance in commercial IT deployments at companies including The Body Shop, Procter & Gamble and Volvo. Software availability for the Itanium processor grew with the commercial release of SAS* 9 business intelligence software optimized for Itanium 2-based servers. Intel showed the first wafers of a next-generation Itanium processor code-named Montecito that contains 1.7 billion transistors. Montecito is expected to deliver up to twice the performance of current Itanium processors and is scheduled to be the company's first dual-core processor when introduced in 2005.
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SANTA CLARA, Calif., July 13, 2004 - Intel Corporation today announced second-quarter revenue of $8.05 billion, approximately flat sequentially and up 18 percent year-over-year.
Second-quarter net income was $1.8 billion, flat sequentially and up 96 percent year-over-year. Earnings per share were 27 cents, up 4 percent sequentially and up 93 percent from 14 cents in the second quarter of 2003.
"Intel continued to post strong year-over-year results in the second quarter as our microprocessor business followed seasonal trends and our communications business grew nicely, led by flash memory," said Intel CEO Craig R. Barrett. "We had a notable quarter with respect to new product launches with the introduction of 90 nm processors for mobile and the enterprise market segment along with our Grantsdale chipset for the desktop which delivers some of the most significant PC platform enhancements in a decade. Looking to the second half, we will use our investments in leading-edge capacity to drive growth in our core microprocessor business and expand our presence in chipsets, flash and other communications products."
Intel's second-quarter results included a previously disclosed $62-million reversal of previously accrued taxes primarily related to the closing of a state income tax audit, as well as an adjustment to the effective tax rate. These items increased second-quarter earnings-per-share by 1.7 cents. Intel's first-quarter results included a legal settlement charge that reduced earnings per share by 1.7 cents.
BUSINESS OUTLOOK
The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. Please see the Risk Factors Regarding Forward-Looking Statements in this release for a description of certain risk factors that could cause actual results to differ, and refer to Intel's annual and quarterly reports on file with the Securities and Exchange Commission (SEC) for a more complete description of the risks. These statements do not include the potential impact of any mergers, acquisitions, divestitures or other business combinations that may be completed after July 12.
** Revenue in the third quarter is expected to be between $8.6 billion and $9.2 billion.
** Gross margin percentage in the third quarter is expected to be approximately 60 percent, plus or minus a couple of points. Intel's gross margin percentage varies primarily with revenue levels, product mix and pricing, changes in unit costs and inventory valuation, capacity utilization, and the timing of factory ramps and associated costs.
** The gross margin percentage for 2004 is now expected to be 60 percent, plus or minus a couple of points, as compared to the previous expectation of 62 percent, plus or minus a few points. The company expects faster growth in products such as flash memories, chipsets and motherboards that have lower margins. In addition, Intel expects microprocessor margins to increase at a rate slower than previously expected due to a slight reduction in microprocessor average selling prices and a slower than expected reduction in microprocessor unit costs.
** Expenses (R&D plus MG&A) in the third quarter are expected to be approximately $2.5 billion. Expenses, particularly certain marketing- and compensation-related expenses, vary depending on the level of revenue and profits.
** The R&D spending expectation for 2004 is unchanged at approximately $4.8 billion.
** The capital spending expectation for 2004 is unchanged at between $3.6 billion and $4.0 billion.
** Gains from equity investments and interest and other in the third quarter are expected to be approximately $50 million.
** The tax rate for the third quarter is now expected to be approximately 31 percent, as compared to the previous expectation of approximately 32 percent, primarily due to an increase in the estimated tax benefit for export sales. The tax rate expectation is based on current expected income and assumes Intel continues to receive tax benefits for export sales. The tax rate may be affected by changes in tax law, the closing of acquisitions or divestitures, the jurisdiction in which profits are determined to be earned and taxed, the resolution of issues arising from tax audits with various tax authorities, and the ability to realize deferred tax assets.
** Depreciation is expected to be between $1.1 billion and $1.2 billion in the third quarter and approximately $4.6 billion for the year.
** Amortization of acquisition-related intangibles and costs is expected to be approximately $40 million in the third quarter and approximately $175 million for the full year.
SECOND-QUARTER REVIEW AND RECENT HIGHLIGHTS
Financial Review
** The gross margin percentage for the second quarter was 59.4 percent, below the revised expectation of between 60 percent and 61 percent due to an unanticipated $38-million charge for a chipset manufacturing excursion that occurred late in the quarter and revenue being slightly below the midpoint of the updated range.
** Gains from equity investments and interest and other in the quarter were $39 million, below the previous expectation of approximately $60 million, primarily due to higher than expected impairments.
** The effective tax rate for the quarter was 27.4 percent including the $62-million reversal of previously accrued taxes and an adjustment for an increase in the estimated tax benefit for export sales.
** Inventory levels grew by approximately $427 million during the quarter, with approximately half of the increase coming from microprocessor inventories, and the balance primarily from flash memory and chipset inventories.
Key Product Trends (Sequential)
** Intel Architecture microprocessor units were lower. The average selling price was just below the first-quarter level.
** Chipset units were higher.
** Motherboard units set a record.
** Flash memory units were significantly higher.
** Connectivity product units set a record.
Intel Architecture Business
During the quarter, Intel introduced 22 microprocessors built on 90 nm lithography and 300 mm wafers, as well as the first chipsets using the company's 130 nm technology. The introductions bring new microprocessor and platform technology to a wide range of desktop, notebook, workstation and server systems.
For the desktop, Intel introduced a new family of chipsets designed to help make home PCs more entertaining and business PCs more productive and secure. Formerly code-named Grantsdale and Alderwood, the Intel® 915 G/P and 925X Express chipsets deliver some of the most significant PC platform enhancements in a decade, including support for high-definition video, 7.1 surround sound audio and dual displays. Intel also introduced six Pentium® 4 processors with Hyper-Threading (HT) technology that can be used with the new chipsets to help users better enjoy digital music, photos, videos and games on the PC. The company also introduced four Celeron® D processors for value desktop systems.
In mobile, the company launched new Intel® Pentium® M processors designed to boost the performance of wireless-enabled notebooks based on Intel® Centrino™ mobile technology. Formerly code-named Dothan, the processors include new design features such as increased on-die cache memory that enhance the way wireless notebook users work, learn, play and communicate. The company also introduced several Mobile Intel® Pentium® 4 processors for desktop-equivalent notebooks and a Celeron® M processor for value notebooks.
For the enterprise, Intel introduced new Intel® Xeon® processors, formerly code-named Nocona, which together with the Intel® E7525 chipset bring new capabilities and performance levels to workstations. The platforms support HT Technology, an 800 MHz system bus, PCI Express graphics and I/O, DDR2 memory, 64-bit memory extension technology for working with data sets greater than 4 GB, and Demand Based Switching with enhanced Intel® SpeedStep® technology for lower power consumption. Server platforms based on the new Intel Xeon processors are expected to be introduced during the third quarter.
The Itanium® 2 processor continued to gain acceptance in commercial IT deployments at companies including The Body Shop, Procter & Gamble and Volvo. Software availability for the Itanium processor grew with the commercial release of SAS* 9 business intelligence software optimized for Itanium 2-based servers. Intel showed the first wafers of a next-generation Itanium processor code-named Montecito that contains 1.7 billion transistors. Montecito is expected to deliver up to twice the performance of current Itanium processors and is scheduled to be the company's first dual-core processor when introduced in 2005.
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