Intel Reports Record Profit in 1st Quarter
Intel Corp., lifted by business and consumer demand for its latest computer chips, said Monday that its first-quarter profit more than doubled, exceeding most expectations.
Intel, the world’s largest maker of microprocessors, earned a record $1.98 billion, or $2.20 a share, for the three months ended March 29, up from $894 million, or $1.02 a share, for the same period a year ago.
The Santa Clara, Calif.-based chip maker said revenues hit a record $6.4 billion, compared with $4.6 billion a year ago.
Intel released its results after the stock market closed. But in a sign that the report contained some negative news for investors, its stock dropped as much as $3.875 a share, or nearly 3%, in after-hours trading. That wiped out Monday’s gain of $3.25 a share to $133.75 in Nasdaq trading.
Intel has had a virtual lock on the market, with more than 80% of the world’s computers using Intel chips. As such, it is widely regarded as a bellwether for the technology sector, particularly the personal computer industry.
Intel attributed its record quarterly profit to higher demand for its most advanced microprocessors, the Pentium processor with MMX media enhancement technology and the Pentium Pro processor.
As expected, Intel’s sales were flat compared with the fourth quarter of 1996, a strong finish to a record year. Intel said it expects revenue for the current quarter to be flat or up slightly from the January-March period.
In addition, Intel reiterated that its gross margins--its sales minus gross profits--could slip.
“1997 will be a year of major product transitions for Intel,” said Chief Executive Andrew S. Grove. “As we shift to these more powerful processors, our challenge, as always, will be to add manufacturing capacity fast enough to supply all market segments.”
A more profitable mix of products nudged up the company’s gross margin during the quarter to 64% from 63% in the final quarter of 1996. But Intel said margins would be flat or slightly lower in the current quarter, and at about 60%, plus or minus a few points, for the year. The company previously warned it was unlikely to be able to sustain such high margins, but on Monday repeated its expectation that over the long term they would be at or near 50%.
The company also said it expects to spend 7% to 9% more for research and development and marketing in the current quarter than it did during the January-March period.
“It was a solid quarter, showing Intel’s dominance,” analyst Peter Andrew of brokerage AG Edwards & Sons Inc. said of the just-ended period. “But the flat revenue projection in the second quarter could upset some people.”
Intel’s strong first-quarter performance comes as the chip giant is facing stronger competition from smaller rivals Advanced Micro Devices Inc. and Cyrix Corp.
Last week, AMD unveiled the K6--a microprocessor that crunches numbers and handles graphics as fast as Intel’s top-of-the-line Pentium Pro chip but is 25% cheaper. Intel’s stock dropped 11% in three days last week amid concern about price cuts scheduled for the end of the month and the increasing competition.
* MORE EARNINGS: Quarterly profit soars 76% at GM. D3
