October 17, 2012 - Industry watchers have been awaiting the worst after Intel lowered its 3Q12 expectations a month ago. In the end, the chipmaking bellwether produced better-than-feared results even with concerns about end demand.
Revenues for 3Q12 were $13.5B, at the cap of Intel’s reduced outlook, and gross margins were a notch better than warned (63.3% vs. 62%). Both were flat sequentially. Net income actually improved about 7% to $3.0B. Intel sees sales picking up a bit in 4Q12, to $13.1-$14.1B, though gross margins will slip to 55%-59% due to charges relating to excess capacity, what Intel CFO Stacy Smith characterized as "aggressive tactical actions." Those charges will be mostly restricted to 4Q and not beyond 1Q13.
"The enterprise PC market has gone relatively flat now," a reflection of cautious business end-demand, and this has "spilled over from the client side of the enterprise [to] data center server part of the enterprise," acknowledged Paul Otellini, Intel president and CEO, during the results conference call. Overall PC business growth was about half what is seasonal normal in 3Q12, and will be again in 4Q12 — the real question is whether that’s due to macroeconomic factors, or due to end demand awaiting Windows 8 and new PC/tablet/ultrabook refreshes in the coming months.
To that end, Otellini expressed optimism over demand in the near-term 4Q and beyond. "The world of computing is in the midst of a period of breakthrough innovation and creativity," he said, citing more than 140 core-based ultrabooks in the pipeline, a third of which will have tablet-like touch capabilities and many at or below the $699 price point.
In response to end-demand softness, Intel as expected is reducing its 2012 capex "pretty significantly" to $11.0B-$11.6B, a full billion dollars below its trajectory a month ago. CFO Stacy Smith reiterated the reasoning: reign in utilization to clear out inventory until demand recovers, and keep reusing existing equipment in its 14nm node efforts. "We are taking down utilization in the factories down to sub 50% again to take inventory out and free up the opportunity to move both space and equipment and redirect that to 14nm," noted Smith. He specifically declined to issue a forecast for 2013 capex, saying it will depend on unit growth and visibility into 2014 — but "right now we want to fight through a Q4 where we don’t have a lot of visibility before we lock in on a 2013 number."
We’ll be updating this story with analysts’ feedback about Intel’s results and its impact mainly on the semiconductor manufacturing ecosystem — but generally speaking, cutting over a billion dollars and capex, and acknowledging little visibility to even formulate (publicly) 2013 expectations, is likely to reverberate across the landscape.