No. 1 chipmaker reports stronger-than-expected top line but stock slips after hours.
January 14, 2004: 5:37 PM EST
By Paul R. La Monica, CNN/Money senior writer
NEW YORK (CNN/Money) - Intel Corp. Wednesday reported fourth-quarter earnings that doubled and sales that topped Wall Street forecasts, the latest signs of a solid recovery in the chip sector after a three-year downturn.
But investors sold the stock after-hours, partly to take money off the table and possibly due to confusion over whether earnings topped analysts' estimates -- as well as concerns that sales weren't even stronger.
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The world's biggest chipmaker reported sales of $8.74 billion, 22 percent higher than a year ago, and slightly higher than Wall Street forecasts of $8.66 billion. For the year, sales rose 13 percent to $30.1 billion.
Santa Clara, Calif.-based Intel reported net income for the quarter of $2.2 billion, or 33 cents a share, up from $1 billion, or 16 cents a share, a year ago. Wall Street was expecting earnings of 25 cents per share.
But the net income number included a previously announced charge to write-off goodwill associated with its struggling communications chip business.
The charge, equal to nine cents a share, was higher than the six cents a share Intel told Wall Street to expect last month. Intel also said it had a nine-cent-a-share tax gain from divestitures, also higher than it originally expected.
For the full year, Intel earned $5.6 billion, or 85 cents a share, up from $3.1 billion, or 45 cents in 2002.
Shares of Intel (INTC: Research, Estimates), the best performing Dow stock of 2003, slipped about 3 percent in after-hours trading on Instinet, after edging lower in regular trading on Nasdaq.
Wall Street's expectations for Intel and the rest of the semiconductor sector have surged in recent months and it looks like Intel's fourth-quarter sales, while extremely solid, may have not lived up to investors' increasingly bullish hopes.
Daniel Boone, managing partner with Atlanta Capital, which owns Intel in the Calvert Social Investment Equity fund, said he was expecting Intel to report sales that were much higher than Wall Street's forecasts. So investor disappointment was not a major surprise, especially since Intel's stock more than doubled last year.
"Intel has come a long way and investors have to recognize that," Boone said.
Guidance for first quarter sales was also somewhat lackluster.
The company said it expects first-quarter revenues to come in between $7.9 billion and $8.5 billion. The $8.2 billion midpoint is a shade less than the First Call consensus estimate of $8.24 billion.
"The numbers were OK but nothing to jump up and down about," David Wu at Wedbush Morgan Securities told CNN/Money.
Intel's gross margins, a closely watched measure of how profitable a company is after subtracting its cost of sales, came in at 63.6 percent for the fourth quarter. But for the first quarter, Intel said to expect gross margins of approximately 60 percent. The first quarter is typically weaker than the fourth quarter since demand for computers and other high-priced electronics that feature semiconductors tails off during the holiday season.
The company also said that it expected to spend between $3.6 billion and $4 billion on capital expenditures this year, compared to $3.7 billion in 2003. There had been speculation that Intel's initial capital spending budget would be a little higher and the fact that it wasn't caused shares of chip equipment companies that sell gear to Intel to fall after hours as well. Applied Materials, KLA-Tencor and Novellus Systems were all down about 2 percent, according to Instinet.
So it appears that tech investors will need to reevaluate how much they are willing to spend for technology stocks following last year's stellar run. The key now is for earnings estimates to head even higher and Intel's report may not spur Wall Street to move numbers up that much.
"This was a pretty good quarter but people may have set unrealistic expectations," said Patrick Ho, an analyst with Moors & Cabot.
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