Intel released its results for the fourth quarter of 2008 yesterday - it was only the second time in 20 years that Q4 results were worse than Q3 results.
Q4 revenue was $8.2 billion, down from $10.7 billion last year. Operating income was $1.5 billion, and net income was only $234 million. Earnings per share was 4 cents, down 90% from last year. The results included a billion dollar write-off in Intel's investment in Clearwire.
Over $1.8 billion was spent on CAPEX (capital expenditures) in Q4. CAPEX are used by a company to acquire or upgrade physical assets such as equipment, property, or industrial buildings.
Average Selling Prices (ASP) and gross margins were down due to Fab underutilization, inventory write downs, and the shift from notebooks to Atom and netbooks. Chipset sales by revenue in the Digital Enterprise group were almost half of last year's result.
Intel has only missed earnings estimates once in the last five quarters. The fallout from lower corporate spending is obviously dire, as the most profitable Intel products are in the corporate server space. There was a $250 million charge due to fab underutilization, as Intel now has three Fabs producing at 45nm on 300mm lines. These are Fab 32 in Chandler, Arizona, Fab 28 in Kiryat Gat, Israel, and Fab 11x in Rio Rancho, New Mexico.
For all of 2008, Intel's posted revenue was $37.6 billion, with operating income of $9 billion, and net income of $5.3 billion. Earnings per share was 92 cents.
Intel generated approximately $11 billion in cash from operations while paying cash dividends of $3.1 billion. It used $7.1 billion to repurchase 324 million shares of common stock, which helps to boost its EPS figures.
One major area of concern for technology enthusiasts was that Intel would cut back on CAPEX in 2009, delaying the rollout of its P1268 32nm process and setting back the arrival of Westmere, Nehalem's successor.
However, Paul Otellini, Intel's President and Chief Executive Officer repeated his commitment to 32nm within 2009. In fact, he mentioned 32nm process technology over a dozen times during a conference call.
He stated, "We're going to get there as fast as we possibly can", as 32nm will be critical to Intel's performance and cost advantage. Intel will not delay 32nm, insisting that it is necessary to enable higher production efficiencies.
Intel will be spending $2.5 billion on Research and Development, as well as Mergers and Acquisitions in the first quarter of 2009. Much of that will be on Intel's 32nm process, preparing to launch it in mass production, and ramping it to their other products.
Fab D1D, Intel's 300mm development fab in Hillsboro, Oregon, will be the prototype line, just like for the 45nm process. Over the next six months, this unique factory will turn the 32nm process from the research phase into the production phase. It will be in Hillsboro that Intel will adjust the production line to meet its yield and cost requirements. Once the process has been refined enough, Intel can use the lessons learned to convert other Fabs to the 32nm process.
For all of 2009, Intel plans to spend $5.4 billion on Research and Development. There will be a 2009 introduction for the 32nm process, but it will definitely be a 2010 ramp, just like the 45nm was introduced in 2007 but only readily available for sale to the general public in March 2008. Somewhat troubling was the statement that the "ramp rate will be modulated" based on market demand.
The current plan is to go with mainstream mobile and desktop parts first. Next generation System-on-Chip design, as well as servers will be next. After that, next generation Atom products will be the next priority. No mention was made of Larrabee.
The consensus recommendation of analysts is still to buy INTC. The share price has fallen approximately 20% in the past three months, and it is about 45% lower than it was a year ago.
quote: The money to implement 32nm is, by now, almost entirely sunk costs. Intel would be crazy to delay it substantially. If anything, this means a delay in 22nm and future nodes, ones for which Intel hasn't already spent the majority of R&D costs.