Intel’s Strong Quarter

This week, Intel’s (NASDAQ:INTC) strong results gave a boost to stocks worldwide as CEO Paul Otellini went on to say during the earnings call that “the industry is nearly fully recovered.” The ramp of its new mobile products also led to the better than expected results. Let’s take a closer look.

Intel launched 27 new processors in January, most of which were in the mobile segment. Mobility has been a big trend over the past two years and Intel’s strategy also accounts for it. It recently unveiled an Atom processor “Tunnel Creek” for home-use tablets and in-vehicle infotainment systems.

This month, both Intel and AMD unveiled new multi-core processor chips. Intel’s Xeon 7500 series processors have up to eight cores and target the largest mission-critical enterprise servers. AMD’s Opteron on the other hand has 12 cores and targets the mainstream market and high-density server environment.

Meanwhile, Intel has been offloading its investment in low-margin businesses. It recently sold its stake in Numonyx to Micron. It has also scrapped its plans for a commercial launch of the Larrabee advanced graphics card but would instead use it as a software development platform for graphic and high-performance computing.

However, it seems intent to crack the smartphone microprocessor market that is dominated by ARM. It has recently ported Google’s Android mobile operating system to smartphones based on its Atom microprocessors.

There is another area that Intel is rumored to be interested in- programmable logic device (PLD) and Xilinx is a possible acquisition target. My perspective is that programmability in chip design has become a key factor that is driving a very large portion of the semiconductor business at the moment. The pricing pressure on electronics of all kinds, especially consumer, computers and communication gadgets, is extremely high, making the pressure on the chip ecosystem intense. Chips, therefore, have to be designed for less money but with more functionality, which makes PLDs a better strategy than ASICs and ASSPs, especially for mid-volume products. Against this backdrop, PLDs look to be a relatively viable business model, and I would not be surprised to see Intel eyeing Xilinx.

Intel reported first quarter revenue of $10.3 billion, up 44% y-o-y but down 3% q-o-q, about one-third of the average seasonal sequential decline. Net income was $2.4 billion or $0.43 per share, up 288% y-o-y and 7% q-o-q. Analysts were expecting earnings of $0.38 a share on revenue of $9.84 billion.  Q4 coverage is available here.

Gross margin was 63.4%. Intel ended the quarter with $16.3 billion in cash and investments, $2.4 billion higher than last quarter. During the quarter, it paid $870 million in dividends and purchased $928 million in capital spending.

Its PC client group revenue was $7.67 billion, up 43% y-o-y and flat over Q4. Data center revenue was up 48% y-o-y and down 8% q-o-q to $1.9 billion. Atom processor and chipset revenue was $355 million, down 19 % q-o-q.

Intel expects second quarter revenue to be $10.2 billion, plus or minus $400 million and gross margin of 64%. It raised its gross margin outlook for the full year to 64% plus or minus couple of percentage points from 61% plus or minus 3 percentage points. It is currently trading around $22.8 with market cap of about $126 billion. It hit a 52-week high of $22.82 on April 13 after its earnings announcement.