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Dow 30 Earnings: Intel Corp. – Fourth Quarter 2010
Chip behemoth Intel (INTC - Free Intel Stock Report) has reported strong results for the December quarter of 2010. Specifically, the company recorded share net of $0.59, which represents a nearly 50% improvement from the year-earlier tally and is a nickel above our $0.54 estimate. Revenue climbed nearly 10% year over year, while the gross margin came in at 67.5%, which was slightly higher than management's expectation. Results were driven by a 15% sequential improvement in Data Center revenue, a small increase in average selling prices for microprocessors, and a net gain of $140 million from equity investments and interest income, which was higher than we had anticipated. What's more, business in Europe increased 19% sequentially, thanks largely to stellar demand for Hewlett-Packard (HPQ - Free Hewlett-Packard Stock Report) servers.
Management's view for this year is quite promising, as well. It looks for full-year revenue growth of about 10%, with a roughly flat sequential top-line comparison likely for the first quarter. This is a better outlook than the normal seasonal sequential decline of 8%-10%. We believe that healthy demand for the SandyBridge (its next-generation chip that combines central processing and graphical functions) will help to drive the probable outperformance. The gross margin is likely to decline to 64% in the March period due to 22-nanometer startup costs. The company currently uses a 32-nanometer manufacturing process, and the increased die shrink will help lower production costs and, thus, boost margins. In addition, Intel's capital spending budget for 2011 is likely to be about $9 billion, which is nearly double last year's tally of $5 billion. We attribute this sharp increase to the company's attempt to flex its muscle in the lucrative smartphone and tablet markets.
As a result of the recent news, we have upped our top- and bottom-line estimates for this year. We now look for revenue of $48.65 billion (compared with our prior call of $45.20 billion) and share net of $2.30 ($2.00). A gradually improving global economic landscape adds a degree of support to our assumptions.
Intel shares haven't moved much following the December-period earnings release. We believe that investors had already priced in much of the good news. That said, INTC stock continues to offer appealing 3- to 5-year total-return potential. We think the company will continue to utilize its strong balance sheet, healthy cash flow, and managerial prowess to expand its reach into the faster-growing segments of the technology market (i.e., tablet and smartphone). The company is susceptible to economic downturns, however, of which conservative accounts should be mindful.
About The Company: Intel Corporation is a leading manufacturer of integrated circuits. In addition to primarily supplying manufacturers of personal computers, the company serves a multitude of other global markets, including communications, industrial automation, military, and other electronic equipment. Intel’s product line consists of microprocessors, with the Pentium series being the most notable. It also manufactures microcontrollers and memory chips, and the company sells computer modules and boards, and network products.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.