Intel sees margins improving in second half
SAN FRANCISCO (Reuters) - Intel Corp expects margins to bounce back to "healthy" levels in the second half, but held back on giving detailed quarterly forecasts when it issued earnings on Thursday, citing economic uncertainty.
Shares of Intel rose 4 percent in a relief rally following the report, which came after the world's largest chip maker had issued two revenue warnings in the past three months and sent shivers through the technology sector.
Investors had feared that Intel would slash revenue expectations for the first quarter. Instead, it said it was not providing an outlook but "for internal purposes, the company is currently planning for revenue in the vicinity of $7 billion".
That was toward the low end, but did not miss entirely a range of analysts' forecasts of $6.56 billion to $7.8 billion for first quarter revenue. The average estimate was $7.2 billion, according to Reuters Estimates.
"People were expecting very, very ugly numbers. Intel delivered mixed numbers, slightly better than the bears expected," said Patrick Yang, an analyst with Wedbush Morgan.
Shares of Intel, the world's largest maker of microprocessors, the brains of personal computers, had lost about 10 percent of their value since it warned on January 7 that fourth quarter revenue would miss expectations.
Intel warned on Thursday that gross margins will slip into the low 40s percentage in the first quarter because of start-up costs and charges related to under-utilized equipment. But it held up hope for improvement later this year.
"As I start increasing the loadings again in Q2, even with the increased start-up costs, I think my gross margin will go up a bit and I think it's back into what I would call a healthy range by the second half," Chief Financial Officer Stacy Smith told analysts on a conference call.
"Without anticipating a big snapback in demand, I would anticipate that Q1 is the trough," Smith said.
Intel shares rose to $13.85 from their close on the Nasdaq of $13.29. Some analysts feared the rally will be short lived with chip sales sliding as PC makers and other technology manufacturers trim inventory and cut back on purchases amid a slowing global economy.
Intel rival Advanced Micro Devices Inc said last week it expected to post additional restructuring charges for fiscal 2008 and 2009.
"They were playing it cautious by not officially providing guidance," said Edwin Mok, analyst at Needham. "The big surprise was gross margins, which they guided for the low 40s. I'm concerned that the company is not letting up on its start-up investments in the face of the economic slowdown."
IN GOOD STEAD
The technology bellwether reported fourth-quarter results that were in line with lowered analyst estimates following a revenue warning last week, its second for the December quarter.
Net income for the fourth quarter ended December 27 fell to $234 million, or 4 cents a share, from $2.27 billion, or 38 cents a share, last year, Intel said. That matched Wall Street's forecast of 4 cents, according to Reuters Estimates. Continued...
