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Intel CEO Paul S. Otellini seems overconfident with record Q3 results

By Amarendra Bhushan for CEOWORLD Magazine Updated:October 15, 2008

The great thing about America is that everyone is entitled to thier opinion….and one is able to either voice it, or keep one’s mouth shut especially if said person has no idea what they are talking about…. So why not Intel CEO Paul S. Otellini.. blow

The company also noted that “current uncertainty in global economic conditions makes it particularly difficult to predict product demand and other related matters and makes it more likely that Intel’s actual results could differ materially from expectations.”
So another great company reports earnings and the traders punish them. Why? This is a very good example of why people have become fed up with the stock market.

Chip giant Intel president and CEO Paul Otellini has assured customers that the IT industry is not about to enter a “post-dotcom downturn”, after the company announced earnings were up in the third quarter, narrowly beating analyst expectations.

Net income for the quarter was $2bn, up from $1.8 billion, while net revenue reached $10.2bn. Intel said that sales in both its microprocessor and chipset units drove revenue, but the company admitted that the popularity of its low-cost Atom chip had brought down the average selling price of its processors.

Although Intel executives admitted the current financial turmoil would have an effect on its business, Otellini said it was not time to hit the panic button. “This is not the post-dotcom kind of downturn,” he said. The Intel CEO added that demand for computers was low immediately following the dotcom crash because there were so many available on eBay, offered by companies that had shut down, he said. “That skewed demand,” he said. Net income rose 12% to $2 billion. Revenue increased 1% to $10.2 billion, an 8% improvement over the second quarter. Earnings-per-share rose 17% to 35 cents year-over-year.

Otellini said he did not expect to see such widespread availability of second-hand PCs during the current downturn, while emerging markets are also expected to boost demand. Intel, the world’s largest chipmaker, provides microprocessors that power a range of consumer products, from PCs and laptops to wireless. Because of its size and reach, Intel’s performance is viewed as a bellwether for the rest of the tech sector. The firm had a net income of $1.7 billion for the quarter ended September 29, 2007.

The chip maker had a net revenue of $10.2 billion against $10.1 billion in the year-ago period. “Intel delivered the best third quarter revenue in its history. We were solidly profitable, with operating income of over three billion dollars…,” Intel President and CEO Paul Otellini said in a statement on Tuesday.

“I’m of the opinion that technology will do well during this downturn, for the simple fact that we sell tools of productivity,” he added. According to the statement, the credit crisis could have “follow-on effects” on the firm’s business, including insolvency of key suppliers resulting in product delays.

The statement added that other effects of the financial turmoil could be inability of customers to obtain credit to finance purchases of its products and increased expense or inability to obtain short-term financing of the company’s operations from the issuance of commercial paper, among others.

Otellini said that the company was already well prepared for a downturn since its headcount is 20,000 lower than the peak in 2006 and the company has cut $3 billion in expenses. He also said the company has $12 billion in cash. (That’s enough to pay for about four giant chip factories). Intel had allowed itself to grow too large and diverse, so Otellini refocused the company on its core chip business.

Shares rose 4.65 percent to $16.70 a share in after-hours trading. (That’s down a third since the start of September). The world’s largest chip maker reported net income of $2.01 billion, or 35 cents a share, up from $1.79 billion, or 30 cents a share, a year earlier. The results included a net $162 million write-down of Intel’s investment in Numonyx, a flash-memory joint venture with STMicroelectronics. A year earlier, the included $125 million in restructuring and asset-impairment charges. Revenues rose 1.3 percent to $10.22 billion. In July, Intel predicted revenue of $10 billion to $10.6 billion.

The company has had a heavy investment in overseas chip sales for a long time. It reported growth in all regions, except North America, where sales fell 8.7 percent. Intel expects fourth-quarter revenue of $10.1 billion to $10.9 billion. Analysts expected $10.77 billion in the fourth quarter. Inventories are flat, with the Taiwanese and channel customers cutting back and computer makers building inventory.

Asked how bad it could get, Otellini said the range of revenue was broader than ever before because of the uncertainty. He said that gross margin percentage is expected to be 59 percent, plus or minus two percentage points. That’s fairly typical for Intel, meaning that the company isn’t counting on the world falling apart.

Paul S. Otellini

President and Chief Executive Officer
INTEL CORPORATION

Paul S. Otellini is president and CEO of Intel Corporation, the world’s leading manufacturer of microprocessors for personal and business computing. Intel technology is creating new ways for the world to work, learn and play by extending the reach of the Internet and solving business problems.

Since joining Intel in 1974, Otellini has managed several Intel businesses, including the company’s PC and server microprocessor division and the global sales and marketing organization.

In 2002, Otellini was elected to Intel’s board of directors and promoted to president and chief operating officer. He was named CEO in May 2005, a role in which he’s focused on driving the company’s growth and mission to deliver innovative, energy-efficient products. Under Otellini’s guidance, Intel also aims to usher in a new era when portable wireless computing is available anytime, anywhere. The company also is focused on bringing the next billion people online with affordable computers tailored to their needs.

Otellini received a bachelor’s degree in economics from the University of San Francisco in 1972, and an MBA from the University of California, Berkeley in 1974. Otellini serves on the board of directors of Google Inc.

Intel is, of course, the leader in their line of business. I knew everyone needs a processor. Could not agree more. Good news for this quarter but last time I checked recessions don’t need laptops. I think these earnings are most likely due to leftover deals that were made during the golden years. But don’t let that ruin a feel good story. Intel can save the economy from years of wreckless lending and excess credit!

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