Intel 1Q net up 44%, revs 34% in powerful PC market

Electronic News, April 24, 1995 by Carol Haber

SANTA CLARA, CALIF. - Citing strong demand for its Pentium processor and a robust PC market, Intel Corp. reported 1Q95 net jumped a solid 44 percent to $889 million, or $2.04 per share, from $617 million, or $1.40, in 1Q94. In 4Q94, not was $372 million, or 86 cents per share, whacked by a one-time $475 million pretax charge, or 70 cents per share, for replacing flawed Pentium chips.

1Q95 revenues rose 34 percent to $3.56 billion from $2.66 billion and 10 percent from $3.23 billion in 4Q94. Revenue gains were attributed to Pentium processors, board-level and semiconductor products.

Intel noted 1Q95 results include pretax gains of $81 million, or 12 cents per share, from the settlement of all litigation with Advanced Micro Devices and the sale of part of its interest in VLSI Technology. Also in the first quarter, Intel repurchased 2,000,000 shares of common stock at a cost of $150 million under its stock repurchase program.

Geographically, revenues as a percent of sales broke down as follows: the Americas 50 percent, up sequentially but off year-over-year; Europe 31 percent, off sequentially but up year-over-year; Asia/Pacific 12 percent, flat sequentially and down year-over-year; and Japan 7 percent, down sequentially and down year-over-year.

Intel said 1Q bookings were greater than billings; all geographic regions experienced growth in bookings and billings from 4Q94.

Gross profit margins rose by about three percentage points to 55 percent from 52 in 4Q94. The gain was due to the influx of corrected Pentium chips into inventory and margins would have otherwise remained flat and are expected to hold in the "low 50s," the company noted.

Intel pointed out that Pentium processor revenues exceeded those of the Intel 486 family for the first time; in unit shipments, Pentiums are expected to outperform 486s later this year.

"The Intel 486 family continues to be a major product for us but is increasingly less important as this product nears the end of its natural life cycle," said Paul Otellini, senior VP of sales, at a phone conference following the report. He pointed to continuing demand for the Intel 486DX4 products as entry-level processors for the notebook market and added that notebooks are beginning to move to Pentium following desktops by six months.

In terms of mix between retail and corporate sales of Pentiums, retail was said to be unchanged "still very strong worldwide" while in business, there was said to be "pretty significant" movement beginning in January "as corporate buyers started discovering the Pentium 75MHz product line."

Quarter shipments of PC boards grew again in the quarter and will grow in 2Q but they will be a decreasing percentage relative to Pentiums over the year, the company said.

The PC market is expected to total about 60 million units this year, up from about 50 million last year.

Intel reported 1Q95 cost of sales increased 43 percent from 1Q94 as a result of increased sales of MPUs and board-level products. Cost of sales fell 20 percent from 4Q94 because the 4Q contained the one-time Pentium floating point charge. Primarily as a result of the absence of the non-recurring charge that impacted the fourth quarter, 1Q gross margin percentage increased 17 percentage points and gross margin dollars increased by $743 million from 4Q94, Intel said.

1Q95 total expenses increased 12 percent from 1Q94 due to strategic investments in products and process technology, higher marketing expenses and an expanded workforce. 1Q95 expenses were essentially flat with 4Q94 as a result of lower Pentium processor merchandising expenses and strict cost-control measures. Expenses were 19 percent of revenues in 1Q95 versus 21 percent in 4Q94.

Interest and other income was $149 million. Interest and other income includes $58 million for the settlement with AMD and $23 million from the sale of the VLSI stake. The company expects interest and other income to be in the $70 million range for 2Q95, subject to prevailing interest rates. Tax rate is expected to be 37.2 percent for the rest of 1995.

Net inventories increased $155 million in the quarter to $1.32 billion. The increase was primarily due to rebuilding inventories of Pentium processors, Intel said.

Capital spending was $793 million and depreciation was $305 million in 1Q95. Due to anticipated growth in demand, Intel anticipates increasing 1995 capital spending to $3.2 billion from $2.9 billion. The company expects 1995 depreciation to be about $1.4 billion.

Accounts receivable increased by $362 million in the quarter primarily as a result of record billings. The company's average-days-sales-outstanding was 48, unchanged from 4Q94.

Intel's net cash position (short-term and long-term investments less short-term and long-term debt) decreased by $133 million in 1Q95 to $3.5 billion.

During 1Q95, Intel repurchased the 2,000,000 shares of common stock at a cost of $150 million and sold an additional 3,500,000 put warrants for proceeds of $16 million. As of April 1, 1995, the company's potential put warrant obligation was $821 million to buy back 13,000,000 shares, of common stock. Of the total 55,000,000 shares authorized for repurchase, approximately 26,600,000 shares have been repurchased and 15,400,000 shares of common stock remained available for repurchase under the stock repurchase program, after reserving shares to cover outstanding put warrants.