December 4, 2003 4:01 PM PST

Intel foresees higher revenue--and a charge

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Intel slightly raised its revenue outlook for the fourth quarter on Thursday, citing seasonally strong chip sales, but the company also announced that it expects to take a $600 million charge against the quarter's earnings.

The industry bellwether said it would turn in revenue of between $8.5 billion and $8.7 billion for the quarter, pushing figures toward the high end of its previous forecast of between $8.1 billion and $8.7 billion, set during its third-quarter financial report in October.

News.context

What's new:
Intel says it will report fourth-quarter revenue of between $8.5 billion and $8.7 billion, the high end of its previous forecast.

Bottom line:
Intel?s performance and outlook are considered to be key indicators of the health of the tech industry.

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The update moves the midpoint of Intel's revenue guidance--a figure analysts generally use as a de facto revenue estimate for the company--to $8.6 billion from $8.4 billion. Before the update, many financial analysts had been expecting Intel to adjust the midpoint upward to $8.5 billion. According to First Call, analysts have been predicting that Intel would report a profit of 29 cents per share on revenue of $8.5 billion for the quarter.

The increase in revenue comes from PC chips. The Intel Architecture business, the company said in a statement, is "experiencing solid seasonal growth while demand for communications products remains on track with the company's expectations for the quarter."

The architecture business, which includes processors, chipsets and related components for building PCs, accounts for the majority of the company's revenue.

"Sales in (Intel's different) geographies are all behaving pretty much as you would expect for a normal fourth quarter," Andy Bryant, Intel's chief financial officer, said during a conference call to discuss the midquarter update.

However, Intel's communications product line, the source of its expected charge, remains a troublesome area. The company expects to take a goodwill impairment charge related to its Wireless Communications and Computing Group, which makes products such as flash memory for cellular phones, the company said.

Bryant said that overall, Intel feels that its communications products groups are performing as expected, but during a review, the company found that its wireless business was not matching expectations. A delay in introducing some cellular phone chips, coupled with a later-than-expected transition to the next generation of cellular phones, contributed to the mismatch, he said.

The resulting goodwill impairment charge could be as high as $611 million, Bryant said, and could reduce Intel's fourth-quarter earnings by as much as 6 cents per share, when coupled with taxes.

If Intel hits the midpoint of its new forecast, the chipmaker will achieve a fourth-quarter sequential revenue increase of 10 percent and best its five-year average of 8 percent. However, the company is still somewhat reluctant to proclaim that a recovery in business spending is beginning in the United States, especially in the middle of a quarter, Bryant said.

"With the revenue midpoint being up about 10 percent, we think what you're seeing...is a return to seasonal growth, pretty much across geographies and product categories," he said. Although, "I don't think you'd have that result if you weren't having businesses buying as well."

 

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