Intel Reports Financial Results for its First Quarter of Fiscal 2003

by Anton Shilov
04/17/2003 | 06:24 AM

Intel Corporation announced financial results for the first quarter of its fiscal year 2003. For the recently ended first quarter, Intel’s revenue achieved $6.75 billion, down 6% sequentially and flat year-over-year. First-quarter net income was $915 million, down 13% sequentially and down 2% year-over-year. Earnings per share were $0.14, down 13% and flat with the first quarter of 2002.

The gross margin percentage was approximately 52%, higher than anticipated due to a combination of factors, primarily driven by lower than expected startup costs (basically speaking, they said during the conference call that certain divisions managed to improve the yield), unanticipated sales of previously reserved inventory, and a greater percentage of higher-margin product in the overall revenue mix. Average selling price of Intel Architecture microprocessor units was slightly higher sequentially primarily due to lower XBOX processor shipments as a percentage of overall shipments.

Gains or losses on equity investments and interest and other resulted in a net loss of $75 million, lower than the revised expectation of a net loss of $100 million, primarily due to higher than expected interest income and lower than expected impairments on private equity investments. The net loss on equity investments was $127 million, including the impact of impairment charges of approximately $140 million.

Product Shipments/Mix/Trends in Q1 2003:

• Intel Architecture microprocessor unit shipments were lower despite of the fact that Intel introduced new processors for notebooks (New grades of Pentium 4-M and Mobile Celeron CPUs, Pentium M, Centrino Technology, etc., enterprise (Xeon processors 3.0/3.06GHz) and value desktops (new grades of Celeron processors);
• Initial demand for Centrino products was good and Intel shipped hundreds of thousands units in the first quarter and plan to ship over million in the second quarter. The company expects to end this year with the majority of mobile shipments being Centrino products, hence, the company will be able to grab nearly the largest share of mobile chipset market and also will have a huge share in WLAN market.
• Presently the majority of Pentium M processor shipments are shipped within Centrino package.
• Chipset unit shipments were flat despite of the fact that the company started to deliver i875P chipset for high-end desktops and i865-series for mainstream computers as well as core-logic for Centrino notebooks.
• The company said it shipped hundreds of thousands i865 chipsets in Q1. Intel plans to perform the fastest chipset transition ever with its i865-series.
• Mainboard unit shipments were lower compared to previous periods of time.
• Flash memory unit shipments were lower because of Intel’s pricing strategy, as we discussed a number of weeks ago. Due to this fact, Intel’s Wireless business revenue fell 29% sequentially, but still achieved 3% year-on-year increase.
• Ethernet connectivity product unit shipments were lower.

Business Related Information for Q1 2003

• The results on the geographic basis were in line with expectations – slight rise of sales in Japan, but decrease of demand in Asia-Pacific, Americas and Europe sequentially.
• Europe was 5% higher year-over-year as a part of Intel’s sales thanks to strength of medium and small business segments  and emerging markets (for example, Russia). Worth to say that Intel saw corporate PC upgrades in Western Europe.
• Americas were down 11% sequentially as a percentage of Intel’s revenue.
• Asia-Pacific was up 7% year-over-year primary because quite a lot of PC manufacturers are now located in Asia.
• Asia-Pacific now accounts for 39% of revenue.
• Intel expects Americas to continue to fall and Asia to rise because more and more computer hardware parts are directed to Asia for assembly and so on.
• Overall ASPs for CPUs were higher sequentially.

Business Related Expectations for Q2 2003

• Intel expects revenue in the second quarter to be between $6.4 – 7.0 billion. In the midpoint it is year-over-year increase of 6%, but slightly below the first quarter.
• Gross margins in the second quarter should be 50% plus or minus a couple of points.
• CPU ASPs are expected to remain flat.
• The company plans to reduce the size of the workforce modestly.

Highlights for the Future

• Intel plans to accelerate Celeron processors further within this year.
• In the third quarter this year the company will roll-out its Xeon processor for 2-way servers and workstations with 1MB of L2 cache and new 90nm products coming later this year.
• The next member of the Intel Itanium processor family, code named Madison, is scheduled for a mid-year introduction. The processor is based on 0.13 micron technology, provides up to 6MB of cache memory, and is designed to plug into existing Itanium 2 system designs. In the second half of 2003, Intel plans to introduce a lower-power version of the Itanium processor, code- named Deerfield, designed for DP workstations and servers. The company plans to further expand the Itanium family with a 9-MB cache version of the Madison processor in 2004, followed by a dual-core processor code-named Montecito in 2005.
• New corporate-stable chipset code-named Springdale to appear in the second quarter.
• When the Prescott processors are available later this year, they will be supported by a variety of Springdale platforms.
• Intel expects personal computer market to grow this year, but not really greatly.