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Intel's uninspiring Q4 highlights transition challenges

Results down on 2011 but ahead of forecasts, but outlook cautious and mobile will not "move the needle" this year


Published: 18 January, 2013

READ MORE: Financial | Intel | Semiconductor

Intel's fourth quarter results highlight the same trends which have pressurized it over the past year - the decline of PC growth and its very inadequate transition (so far) to the mobile and embedded markets, leaving it very dependent on its still-strong server processor base. Even that is under threat from ARM-based challengers, but this is a fortress Intel is well prepared to defend, and it is also seeking new revenue streams and models, notably with a move towards foundry services. According to a Bloomberg report, it has added Cisco to last year's tentative experiments providing chipmaking to small partners.

Despite the underlying challenges, the results topped Wall Street expectations and analysts have found reasons for optimism in some recent mobile breakthroughs - deals with handset makers such as Lenovo and Google/Motorola, and last week's launch of the latest Atom SoC roadmap targeting affordable smartphones. There are also hopes for a major role in tablets courtesy of Windows 8 Pro, with models due to start appearing this spring, as well as a slow but steady momentum building behind ultrabooks.

For Q412, Intel reported net income of $2.47bn, or 48 cents a share, down from $3.36bn, or 64 cents a share, a year earlier. Excluding certain items, per-share earnings totaled 51 cents, down from 67 cents. Analysts had expected earnings of 45 cents. Revenue fell 3% year-on-year to $13.48bn, below Intel's own guidance, made on October, of $13.6bn and also below Wall Street forecasts. Gross margin slid to 58% from 64.5%, slightly better than expected.

However, the analysts may have been moderately pleased, but the results were still down on the year-ago quarter, and Intel's outlook was cautious. Its projections for the first quarter of fiscal 2013 and for the full year were slightly worse than anticipated. Intel further stoked nervousness by saying it planned to spend $13bn on investing in buildings, plant and equipment, particularly for the latest wafer size, 450mm - $2bn up on last year, though presumably partly to support the move towards foundry business.

Intel said it expects revenue to rise in the low single-digits on a percentage basis in 2013. Gross margin should be around 60%, below its historic norm of 65%, which analysts increasingly think will never be reached again. Analysts expected revenue of $54.3bn this year, which would be up 1.95% from 2012's $53.3bn. For the first quarter, Intel expects revenue of $12.7bn, plus or minus $500n, while Wall Street was expecting $12.91bn.

"The slightly weak outlook is not a surprise, and gross margin a little higher than people thought is a positive thing," Bernstein analyst Stacy Rasgon wrote in a client note. "But capex is going to be concerning. It seems awfully high."

The biggest problem for Intel is that the PC base is declining more quickly than it had hoped - unless the ultrabook can be classed as a PC and gains steam this year - while its mobile business is not growing nearly quickly enough to fill the void. The firm admitted its mobile processors will not "move the needle" for the whole company until next year, when it has high hopes for the emergence of an LTE mass market. By 2014, Intel will have wider range of price points for its low power Atom SoCs, and will have integrated these fully with the modems it acquired from Infineon, to offer an all-in-one platform to counter Qualcomm's Snapdragon/MSM combinations.

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