Intel First Quarter Earnings Highlights

“Intel feels confident in calling a bottom in PC Sales.” This was actually the second sentence of the release (after top and bottom-line data).

Intel Corporation (INTC)

First Quarter
Revenue- Actual $7.1B Consensus $6.9B (Beat)
Gross Margin- Actual 45.6% Consensus 43.5% (Beat)
Bottom-line- Actual $0.11 Consensus $0.03 (Beat)

Outlook
Revenue- Flat with 1st quarter.
Margin- Mid 40’s
Spending- Flat with 1st quarter.

Mobility

One point that came out of the Q and A session is that Mobility had much weaker operating margins than the previous quarter. The reason is the inventory pipeline for mobile products is longer than the inventory pipeline is for desktop products, and so revenue is down more in mobile because it just took longer to burn through that overhang of inventory. It wasn’t until the end of the quarter that inventory levels looked a little bit more normal.

Mobile is also the majority of what is run in INTC’s factories now. So the division picks up well over half of the excess capacity charges.

A Departure

After years of building its own chips, recall that on March 2nd 2009, Intel and TSMC announced an agreement to collaborate on customizable chips. Perhaps as many as 80-85% of the worlds PCs run on Intel chips.

That business is solid, but not a fast growing one. Intel desires its chips to be run on phones, GPS systems, and games. The market leader in that world is ARM Holdings (ARMH).

Paul Otellini Responds About When Demand Would Return

“I think there was some replenishment of Intel chips at our OEMs customers in the first quarter, but certainly not a number that I think would reflect full inventory levels. I think everyone is still running very lean. We actually have seen some expedites in the March time frame ‘if can you get us product real fast,’ ‘we’re running out of end-user built up product,’ etc.

“So I think you’re still seeing that. And my sense is it will stay that way until the second half of this year when you start seeing normal seasonal growth return into the business.”

Keep an Eye On

Over the last few years, Advanced Micro Devices (AMD) has consistently churned out lower-cost alternatives to Intel’s offerings. AMD was the first to introduce 64-bit Athlons and Opterons for desktops and servers, respectively. More recent introductions include the Phenom and Barcelona processor families for desktops and servers, respectively.

The company has launched both quad-core and triple-core versions of these products. The triple-core products are expected to be a lower-cost alternatives for price-sensitive customers, although the quad core products are also expected to do very well.

The formation of the new company, called GLOBALFOUNDRIES is the final peg in AMD’s growth plan. The details of the transaction with ATIC and Mubadala Investment Company are as follows.

Tick-Tock Strategy

The tick-tock strategy is a two-year development program, wherein the odd years are referred to as the “tick” and the even years the “tock.” In the “tick” year, the company focuses on die shrinkage, enabling it to produce a larger number of processors per wafer of silicon. This significantly reduces costs and enables it to continue generating attractive margins even when the products are sold at lower price points. In the “tock” year, the company introduces a completely new processor micro architecture.

The new platform is designed to offer additional functionalities and greater energy efficiency. 2007 being an odd year, the company followed the tick strategy, ramping up production at the 45nm node. The Penryn (introduced in 2007) is a 45nm version of the Core 2 architecture, on which Intel was able to deliver improvements, both in terms of performance and price.

New Products

Intel launched the Nehalem CPU microarchitecture in the fourth quarter of 2008. Nehalem is a significant improvement over the Core 2 microprocessor. The most significant architectural improvement is the elimination of the Northbridge memory controller (the logic chip handling data moving to and from the main memory). The memory controller is instead integrated onto the CPU core, enabling faster data transfer rates and greater energy efficiency.

Initial testing of the chip shows significant performance improvements over existing Intel and AMD microarchitectures. Nehalem has been constructed in a manner that would allow quad and octo-core functionality. The processor will also incorporate DDR3 memory and enable the integration of 3D graphics processors on the same chip.

In 2008, the company also launched the 45nm Atom processors, which are a low-power, low-performance, low-end family of products intended for Mobile Internet Devices (MIDs), smart phones and Internet-centric computers called nettops and netbooks. The processors are based on x86 and x86-64 architectures, previously code-named Silverthorne and Diamondville, and built on the Intel Centrino platform.

Atom started shipping in the first quarter. The chip incorporates the Core 2 duo instruction set and enables multi-threading for a better user experience. Management stated that the initial response for the product was very good, and announced 35 new design wins at 25 customers in the MID market.

Management expects the demand for Atom to be extremely high, as it will be particularly useful for “netbooks” and “nettops” that are ultra-mobile, affordable, internet-centric computing devices expected to hit the market this calendar year.

“Netbooks” are expected to attract first-time buyers in developing economies, while in developed economies, their pricing and portability are expected to help second and third unit sales per household.

Although they are unlikely to be as efficient as some of the latest chips for desktops and servers, there is a longer-term potential for adoption in consumer electronic devices, embedded applications and thin clients. Since the chip is specially designed for the portable market, the design excludes some features that lower the manufacturing cost. This is expected to help maintain margins even as volumes ramp up.

Management stated that the Atom processor would generate margins in the 58% range. Given the enormous prospects, revenues are being broken out separately.

Subscribe by RSS Subscribe by Email