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Intel's record Q4 sales fail to calm investors

Intel reported record fourth-quarter revenue on Tuesday, but the chipmaker's shares dropped sharply after hours as its earnings and its first-quarter projections disappointed an already jittery Wall Street.

The company reported revenues of US$10.71 billion, up 10.5 percent from the same quarter a year earlier, but below the midpoint of the company's guidance and about US$100 million short of analyst forecasts.

The report comes amid rising investor concern about the impact of a possible slowdown in spending on computers in the first half of the year. For the first quarter, Intel forecast revenue of US$9.4 billion to US$10 billion, on the low end of analysts' forecast of US$10 billion.

Yet Intel executives said overall demand for computers was strong in the fourth quarter, and largely attributed the disappointing revenue to lower prices for NAND chips, used in flash-memory cards.

"You hear the pundits saying that the world is going to go into a trash basket and you worry," Intel CEO Paul Otellini said in a conference call with analysts. "At this point we don't see anything on the horizon."

Intel executives said that demand for computer products met expectations in the quarter.

Net income was US$2.27 billion, a 51 percent rise over the fourth quarter of last year. Earnings per share were US$0.38, US$0.02 short of analysts' forecasts, Thomson Financial said.

Intel, the world's largest computer chipmaker, is closely watched as an indicator of the strength of the technology industry, and its strong performance in the third quarter bolstered investor confidence in October. But the first quarter is often Intel's weakest, and investors are increasingly concerned that tendency could be compounded by an overall slowdown.

Banc of America Securities and JPMorgan recently downgraded Intel to a neutral rating on concerns of weakening demand.

"What we're seeing are the first signs of a slowdown," said Christopher Danely, an analyst with JPMorgan. "By the end of earnings season people will be convinced there's a problem out there."

Shares of Intel ended regular trading at US$22.69, down US$0.39, or 1.7 percent. After the market closed and the earnings report was issued, the shares declined 14 percent to US$19.48.

"It's disappointing," said Cody Acree, an analyst with Stifel, Nicolaus & Co. "We were holding out hope that there'd be some comfort, but none was forthcoming."

One bright spot was gross margin, which was 58.1 percent for the fourth quarter, beating the company's own target and improving from 52 percent in the third quarter.

For the full year, Intel reported revenue of US$38.33 billion, an 8 percent gain over 2006, and net income of US$6.98 billion, an increase of 38 percent.

"The fourth quarter capped a very strong 2007 for Intel," Otellini said. "We achieved our goal of regaining product leadership across our product line and of becoming leaner overall."

From a competitive perspective, Intel is widely perceived to have regained the upper hand. In recent quarters the company has revamped its lineup of processors, including a number of new multicore processors and its first quad-core chip. Many analysts say Intel seems to be reclaiming technological leadership over Advanced Micro Devices, and the company appears to have regained some of the market share it lost.
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