1.15.2008

Intel's Q4/2007 Report

Intel's Q4/2007 numbers:
• 2007 Operating Income $8.2 Billion, up 45 Percent
• Fourth-Quarter Revenue $10.7 Billion, up 10.5 Percent Year-over-Year
• Gross Margin 58 Percent, up 8.5 Points Year-over-Year
• Operating Income $3 Billion, up 105 Percent Year-over-Year
• Record Microprocessor and Chipset Units and Revenue
• Net Income $2.3 Billion; EPS 38 Cents

Q1 2008 Outlook
• Revenue: Between $9.4 billion and $10 billion.
• Gross margin: 56 percent plus or minus a couple of points.
2008 Outlook
• Gross margin: 57 percent plus or minus a few points.
• R&D: Approximately $5.9 billion.
• MG&A: Approximately $5.5 billion.
• Capital spending: $5.2 billion plus or minus $200 million.

Impressive figures, but unfortunately when a bear market looks for tell-tale signs of an impending recession they always find something negative to focus on. Take for instance Intel missing consensus by around $100M. "Aha!" said the market. "There's your global recession right there!".

Assuredly, the conference call was peppered with leading questions. In order to justify their recent industry downgrade, analysts tried their best to make Paul and Stacey say what they wanted to hear. Several questions focused on the inventory situation, looking for any cancelled orders and then drilled on the relatively flat gross margin prediction for 2008. But the analysts never got what they wanted. Instead, what they heard was exactly the opposite. Inventories are lower than expected; demand, especially in server and mobile, is solid while the market is expected to grow double-digits in 2008. Intel's slightly lower revenue was in fact primarily due to significantly lower memory pricing (a result of a global over capacity), and the charge for the NAND spin-off. While none of the shortfall was attributed to Intel’s computing group, nonetheless, Intel admits it is prudent to be cautious.

As for AMD, the general outlook Intel provided can be taken as positive news. A healthy market relieves pressure on margins going forward allowing AMD time to put things in order. The only problem for the scrappy little company is trying to catch up to a more focused and much leaner competitor. As Intel delivers on Silverthorne, 65nm chipsets, WiMax and Nehalem, 2008 is set to be AMD’s toughest year yet.

30 comments:

Roborat, Ph.D said...

Additional take on the earnings call (avoiding a long blog):

+ Intel’s desire to maintain healthy margins is very apparent. Intel wouldn’t comment on the idea that they will be taking back market share which suggests reluctance in sacrificing GM – especially after the difficult restructuring.
+ Intel described that the slow shift in servers is now finally on its back and the momentum is strong. This means that Intel is winning most design wins for the next generation servers which should provide a steady demand of Xeon processors for the next couple of years. the absence of competition definitely helps.
+ Intel expects good margins on Silverthorne. This remains to be seen with ARM well entrenched in this space.
+ Development engineers shifting from 45nm deployment to 32nm development was also mentioned - probably just to scare AMD into submission.
+ Intel insists that 45nm ramp is better than 65nm. In fact, significant savings in CAPEX was mentioned due to process improvements (even before ramp)… A big contrast to AMD’s 65nm woes.
+ Once again, AMD has become a non-issue. Company name was not even mentioned.

Orthogonal said...

The market reaction to this "miss" is really overblown (Of course I'm biased), considering this was Record numbers. The big "R" is just giving wall st. the creeps.

After looking more closely at the numbers it's not really that bad. Intel missed Revenues expectations by 100M which is not exactly chump change, but to put things in perspective, consider that Intel made $10.71B in 90 days, or about $4.96M per hour, so in other words, Intel's revenues came up short by about 20 Hours... atleast Q1'08 has leap year right? Margins are good and Net profits are even better, my stock may be taking a hit, but the ol' Annual Bonus is as good as ever. :)

Tonus said...

So that I understand this correctly, Intel was forecast to hit $10.8 billion in revenue this past quarter, and hit $10.7 billion instead?

I don't know the markets well enough to comment intelligently, so I'll just ask how bad this really is. $100 million is a lot of money, but it's a small percentage of $10.7 billion. Is there concern that missing the mark, even in a record quarter, is an indicator of something bad going forward?

InTheKnow said...

My apologies in advance for cross-posting this, but it is so outlandish that I couldn't resist.

" nehalem (wich is Penryn based not P4 based, Intel scraped P4 arch and recycled the name but for different project than the nehalem planed in 2000) "

No. Tejas was orignally due in 2005 and Nehalem due in 2007. Tejas was scrapped but the work done on this was released as Tulsa in 2006. Whitefield was supposed to arrive in 2007 to fill in for Nehalem's delay and lay the foundation for CSI. This was scrapped so Intel came up with Tigerton. The original work on Nehalem was overhauled with input from the C2D project and this pushed Nehalem back by a year to 2008. We should see substantial differences between Nehalem and Penryn architecture when these details are released which show that Nehalem is not a C2D derivative.


Amazing how some people can't see the nose in front of their face. Note the complete lack of a good reason for Intel to go back to a demonstrably poor architecture (or to believe Intel's own statements on Nehalem). Sure, they'll just pack in a winner like the core 2 architecture and resurrect netburst. Why not?

Still you have to admire the authoritative tone. I guess if you say something long enough with the right tone, someone will believe it eventually.

Anonymous said...

Tonus said...

Is there concern that missing the mark, even in a record quarter, is an indicator of something bad going forward?

I'm no expert but I think most would agree the stock market is spooked right now and looking for any excuse, no matter how flimsy, to tank as investors are concerned the US economy might slide into recession. You can thank the subprime mortgage mess and Mr. Greenspan touting the "R" word for causing FUD in the market. The DJIA has slipped almost 12% since its high in October - a "correction" is generally defined as 10% decline and an official bear market as 20% decline.

If the US (and world) economy does slip into a recession, expect declining sales and profits across the entire tech sector as people and companies defer purchases.

Just my $0.02

InTheKnow said...

Regarding Nehalem sockets and modularity I found this.

I can't read the conji, but I can look at the pretty pictures. :)

If this is accurate Nehalem will introduce two new sockets and gives some idea of the modularity of the design. I think the modularity adds a huge advantage for Intel that those who are pulling for AMD are choosing to overlook. Intel can quickly make changes to meet market needs without haveing to completely redesign the processor.

It would also seem to indicate that your old friend the FSB is on the way out Sparks. Just take solace in the fact the Nehalem is supposed to be even faster than Penryn.

Roborat, Ph.D said...

tonus said: Is there concern that missing the mark, even in a record quarter, is an indicator of something bad going forward?

well theoretically, the price of the stock takes into account almost everything that could affect the company. This includes consensus estimates for revenue. When a company misses estimates, the stock normally corrects itself with the new reality. The way this occurs is completely indirect and purely theoretical but are normally guided by adjustments done by market analysts.
But what is special in this particular instance is the macroeconomic concerns playing a bigger role on the stock.
Intel insists that demand is healthy (even proves it with revenues and outlook for the computing group) but investors are totally unconvinced. At the moment investors are using the Intel miss as another dot to connect in a market that most believe is already in recession.

SPARKS said...

“ Sales rose 11% to a record of $10.7 billion from $9.7 billion, but missed the company's own estimates.
Analysts, on average, were predicting a profit before items of 40 cents per share on sales of $10.8 billion, according to a poll by Thomson Financial.”

“Intel insists that demand is healthy (even proves it with revenues and outlook for the computing group) but investors are totally unconvinced. At the moment investors are using the Intel miss as another dot to connect in a market that most believe is already in recession.”

19.88

TIME TO BUY, when the idiots are headed in one direction, naturally, I’ll go in the other.


In The Know, I loved the FSB, it was so-------------tweekable! (sigh)


SPARKS

SPARKS said...

"+ Once again, AMD has become a non-issue. Company name was not even mentioned."

That said, AMD gained 45 cents on the day.

INTC+Record sales= 2.87 loss

AMD+Losses+Debt+no product=.45 gain


Could someone please venture a quess on what's wrong with this picture.

Please, explain it to me like I'm a twp year old. I am absolutely clueless.

SPARKS

Anonymous said...

"TIME TO BUY, when the idiots are headed in one direction, naturally, I’ll go in the other."

Often that strategy works reasonably well, though in an environment where all stocks head down, tech has a tendency to get hit the hardest...might want to wait a few weeks and let the folks selling in fear finish off what they are doing.

Anonymous said...

"Could someone please venture a quess on what's wrong with this picture."

Idiots assume that Intel being lower than the (ridiculous) street expectations means that AMD must have picked up that biz. They ignore the possibility that the whole market may have slowed and it is quite possible AMD slowed equal to or worse than Intel (in terms of expectations). In my view this is as likely as AMD picking up in Q4.

The only other possible thing I can think of is they might have assumed as Intel's margins went up significantly in Q4, that AMD's will also?

A market slowdown hurts AMD more than Intel as then the price wars kick in again as the only way to grow when the market is not is to eat into your competitors market share; I'm talking short term and ignoring breaking into new markets outside the traditional CPU biz. While this does not bode well for Intel's margins (which is why I think they guided lower than 60%), it could also mean a lot of additional pain for AMD unless they get their product performance up somehow (though at this point it seems like the K10 is what it is).

Orthogonal said...

INTC+Record sales= 2.87 loss

AMD+Losses+Debt+no product=.45 gain


On the surface it doesn't make sense, but I would venture to say that AMD's recent rise is just trader's covering their @$$ (Shorts) after a more than YoY 60% decline in the event that they have better than expected Q4 results (Net loss/profit is irrelevant).

Intel's drop is mainly general market bearish sentiment permeating wall st. It's so thick you can cut it with a knife now. Intel still has an undervalued F P/E ratio, so there's still upside, but it takes a back seat to the big "R" fears.

SPARKS said...

“might want to wait a few weeks and let the folks selling in fear finish off what they are doing.”

“Idiots assume that Intel being lower than the (ridiculous) street expectations means that AMD must have picked up that biz.”

“AMD's recent rise is just trader's covering their @$$ (Shorts) after a more than YoY 60% decline in the event that they have better than expected Q4 results (Net loss/profit is irrelevant).”


Sound and prudent, quite right, and an interesting point of view.



However, 19.88 is mighty tempting at this juncture, regardless, as others may see this opportunity at tomorrows opening, tough thing though, throwing money around,-------hmmmm.

I’ll bet INTC’s money people are looking at it, too, as they repurchased 57 million shares last quarter, with an additional $14.5B authorized for buy back.

http://media.corporate-ir.net/media_files/irol/10/101302/
2007Q4_Intel_Earnings_Release_1245_update.pdf


God, what a company.


Thanks

SPARKS

InTheKnow said...
This comment has been removed by the author.
InTheKnow said...

I saw or heard something the other day that put the meaning of 45nm in a new perspective for me. I thought I would pass it along.

The original Intel 4004 microprocessor was built on 10 micron technology. If we were to build Penryn on 10 micron technology, just how big would it be?

10 microns is 222.2 times the size of 45nm.

Penryn is about 8.27mm x 12.92mm give or take a bit.

Since only the transistors have to scale and the spacing doesn't let's assume that half of the die area is spacing and toss that.

Our new dimensions are about 4.14mm x 6.46mm

Multiplying by the size difference (222.22) gives ~919mm x ~1436mm

Or if you prefer English units a mere 3.0 x 4.7 feet.

This is hardly a rigorous calculation, but I think it kind of puts die shrinks into perspective.

Anonymous said...

"This is hardly a rigorous calculation, but I think it kind of puts die shrinks into perspective."

Another perspective (for the techno geeks...)

In what was a single contact in the 6" wafer days (~1um?), you can now fit an entire SRAM cell with room to spare... this is 6 transistors, each with 3 contacts-though some are shared). It's amusing to hear folks say innovation will stop without AMD... if you are a sole supplier to a market the best way to grow the market is to grow the capabilities and the drive the need for new products. Without AMD, the innovation would continue, otherwise the upgrade cycle would slow and Intel would have a hard time selling chips. Of course the pricing may be a bit different, but the drive to innovate would not change.

Roborat, Ph.D said...

Trade a Bounce

This is the premiere semiconductor company in the world. Semiconductors are crucial components for computers and all sorts of electronics. Step in now and hold when nobody else wants to and when some good news surfaces and the panic subsides, buyers will return and you can sell it to them then.

you're not alone in your sentiment, Sparks.

Plus cash dividends!
Announce dividends to stop the selling!

Anonymous said...

I see that Sharijoke is blogging on Intel's decision to delay some of the higher-clocked Penryns due to MTBF below expectations:

INTEL quad core chips fail after running for a while

"Intel is very sensitive to mean time to failures. During a simulation, at high clock frequencies, we noticed an increase of potential failures after a designated amount of time."


At least Intel behaved responsibly here, unlike AMD's continuing to sell TLB-defective Phenoms...

Tonus said...

Yeah, that would also be a problem if Intel needed to rush CPUs to market in order to be competitive. Seeing as they're in the driver's seat, the delay (while not something that they want) is not a game-breaker for them.

Anonymous said...

According to TGDaily, AMD just posted a $1.8B loss for Q407, almost all of it for the ATI "goodwill" writeoff. Total loss for 2007 was $3.38B.

On a positive note AMD was close to break-even with a 4th quarter operating loss of just $9M. Also they shipped 400K quad-cores in the 4th quarter.

AMD looks like a Goodwill Industries candidate company now - anybody want CPUs made by the blind??

Anonymous said...

Actually the AMD #'s (at first glance) don't look too bad - about 100Mil loss when taking out the goodwill charges.

Q1 is generally slower, so AMD's re-revised forecast of breaking even Q2'08 may not be out of the question, depending on how the overall world economy fairs.

It is funny to hear 'everything is on plan from forecasts made LAST MONTH is almost said as if it is an accomplishment. People forget the original plan and are simply happy with things being in line after a single month! Even a broken clock is right twice a day. It's an expectations game...

It's also worth noting that AMD's revenue missed expectations by ALMOST EXACTLY the same amount as Intel; though I suspect the stock will not get pounded like Intel's did as the losses were less than expected.

It is remarkable the overpayment for ATI though... $1.7Bil, somoeone really should lose their job for that! Could you imagine what that much more cash or less debt would have meant to AMD...they'd likely already be back to profitability.

Eddie said...

Anonymous said...

"It is remarkable the overpayment for ATI though... $1.7Bil, somoeone really should lose their job for that! Could you imagine what that much more cash or less debt would have meant to AMD..."

The ATI acquisition is a suicidal decision. The main problem with the acquisition is that ATI gets hurt in its access to the Intel based-computers if it is a subsidiary of AMD, that is, by the mere fact of acquiring ATI, AMD devalued it substantially. The most absurd part of this decision is that it was entirely unnecessary. I wrote a good explanation for these opinions.

Other than that, two mediocre companies give you a mediocre company. Sometimes, like when AMD acquired Nexgen, a mediocre company + excellent company = very good company.

ATI is not even generating operating net income

SPARKS said...

Q4 2007 revenue of $1.770 billion.
A net loss of $1.722 billion.
Operating loss of $1.678 billion USD.

Umm, I was wondering, does all these great financials, “beating anal-ists expectations”, include the Middle East, $622 M cash infusion as part of its reported “revenue”?

Nothing like a cool half billion to make your financials look this good!

Now I now why the new platform is called 'Spider'; they sure know how to spin, don’t they? They are masters, absolute masters.

SPARKS

Orthogonal said...

Umm, I was wondering, does all these great financials, “beating anal-ists expectations”, include the Middle East, $622 M cash infusion as part of its reported “revenue”?

We'll have to wait until they file their 10Q report in March to see how they applied the cash infusion to their balance sheet, although I doubt they counted it as revenue, however it is possible they plan to amortize it over a year or two as credits to operational expenses much like their gov't subsidies from Germany. Although, I'd be willing to bet they simply adjust their cash on hand to reflect the new $622M.

SPARKS said...

Ok, Orthogonal, how’s about this one.

”INTEL quad core chips fail after running for a while”

"Intel is very sensitive to mean time to failures. During a simulation, at high clock frequencies, we noticed an increase of potential failures after a designated amount of time."

Normally, I don’t comment on those idiots on the pro/pimp/propaganda AMD shill websites. I can’t help myself, resistance is futile.

Aliens from Beta Reticula are visiting Washington, DC!
A Lockness type monster “Champ” has been sushi’d in downtown Chicago!
The Air Force is allowing Alien cattle mutilations!
Big Foot to appear on David Letterman!
Wrector Ruins discovers Barcelona’s missing clock speed with Amelia Earharts luggage!

Pa Leese!

SPARKS

Accountant said...

Umm, I was wondering, does all these great financials, “beating anal-ists expectations”, include the Middle East, $622 M cash infusion as part of its reported “revenue”

It was reported that the cash was invested by Abu Dhabi for an 8.1% stake in the company, meaning stock was issued. Thus, there shouldn't be any impact to revenue or expenses - just a dilution of share price and ownership for existing shareholders.

SPARKS said...

"Intel is very sensitive to mean time to failures. During a simulation, at high clock frequencies, we noticed an increase of potential failures after a designated amount of time."


Maybe, they got the two companies confused?

http://www.extremetech.com/article2
/0,1697,2249948,00.asp

SPARKS

Axel said...

Anonymous

On a positive note AMD was close to break-even with a 4th quarter operating loss of just $9M. Also they shipped 400K quad-cores in the 4th quarter.

Yes they just about broke even due to improved gross margins. And here's the main reason why margins improved: Fab 30 has been shuttered. CFO Rivet talked about "cost cutting measures", well guess what, when you shut down an entire fab and don't have to pay the monster utility bills and keep a cleanroom environment, not to mention the chemicals etc. used in the process, that's a major cost savings.

The problem, of course, is that AMD are down to one fab again. And as long as their ASPs remain in the gutter, they will not be able to afford to operate Fab 30/38. Look for Fab 30/38 to remain shuttered through 2008 and probably well into 2009 as well. If 45-nm cost savings come through in spades and AMD can turn a significant profit in 2009, they might be able to restart Fab 30/38 some time in 2009. If not, then they have to pin their hopes on Bulldozer in 2010 at 32-nm. I don't see any other upside prospects for ASPs sufficient to support restart of Fab 30/38 otherwise.

Giant said...

Just a small $1.7bn loss eh? Flat revenues YoY.



The problem, of course, is that AMD are down to one fab again. And as long as their ASPs remain in the gutter, they will not be able to afford to operate Fab 30/38.


It gets even worse than that. With AMD producing mammoth size 283mm2 quad core dies with poor yields and selling them (oh, and the 'innovative' tri-core CPUs!) at fire-sale prices their ASPs will remain low and they won't be able to gain much more market share at all. (despite basically giving away CPUs!)

Anonymous said...

"Just a small $1.7bn loss eh? Flat revenues YoY."

I'm curious - does anyone know how they do the YoY comparisons? If I recall correctly the Q4'06 AMD #'s only had 2 out of 3 months of ATI revenue due to closure of the merger. If so do they correct for this?

If true, this would mean in reality that YoY was actualy down as 1/3 of ATI revenues was not counted of the Q4'06 #'s. I can easily see this being forgotten by analysts.

I think the lower than expected losses (excluding the ATI charge) is still a definite positive though.