Intel's Third Quarter Results Break Records, Smash Expectations

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News Posted: Thu, Oct 15 2009 12:16 AM
At a time when economists and TV pundits are still more likely to characterise the economy as "coasting along the bottom" rather than "recovering," Intel's Q3 results have rocketed past the predictions of even the most optimistic Wall Street analysts. The company's Q4 predictions are similarly rosy—if there's ever been a time when it's been good to be king, the company clearly feels it's now. The very strength of Santa Clara's announcement fueled analyst worries that meteoric results in Q3 could quickly fall to earth in Q4, a worry Intel has been quick to assuade.

First, let's do the numbers. For the third quarter of 2009, Intel reported total revenue of $9.4 billion (up $1.4 billion from Q2) and a net income of $1.9 billion (up $807 million quarter-on-quarter.) The company's gross margin was 57.6 percent, up almost seven percentage points from Q2. The 17 percent growth in revenue from Q2 to Q3 broke records that have stood for over thirty years, but we are still in a recession—year-on-year revenue was down eight percent, although this is still stronger from the year-on-year declines of 26 percent and 15 percent that Intel recorded in the first and second quarters.

Intel attributes the growth to a confluence of factors that includes tighter inventory management, excellent yields at both 45 and 32nm, strong demand for Nehalem across both consumer and enterprise product lines (although the enterprise segment remains weak overall), continuing demand for Atom, and growth in the mobility segment. The manufacturer made a point of noting that mobility demand grew more than demand for Atom-based products and emphasized that while it remains focused on Atom and the new markets it believes the processor will open long-term, current netbook sales are "additive" to the company's business, as opposed to a core driver.

Company CEO Paul Otellini holds up a wafer of 22nm processors at last month's IDF

Analyst concerns were aimed at the question of whether or not Intel had outshipped actual OEM demand in the third quarter. Santa Clara addressed these concerns both directly and indirectly (PDF) at multiple points throughout the conference call. According to Paul Otellini, company CEO, "At our large OEM customers, component inventories are roughly half the peak level of late last year and have been approximately flat throughout 2009," Otellini said. "Much of this is due to our implementation of inventory hubs, where we hold the inventory for our large OEM customers who then pull inventory only as needed." (A full transcript of the call may be found here).

Intel is seen as a bellwether of the tech industry; the company's strong results and equally positive expectations for Q4 could be signs that the IT economic recovery is beginning. At the same time, however, Intel noted that the market is being driven by consumer demand for mobile products in particular far more than any enterprise recovery. As a result, there's a higher chance that an unforseen economic shock could take the legs out from under the burgeoning lift. Even if no such shock occurs, the fact that the economic momentum is moderately confined to a particular area means that the benefits of that shift won't be evenly distributed. The rising tide, in this case, will lift the boats of those OEMs and device manufacturers positioned to take advantage of it.

As for AMD, we'll find out tomorrow, but there's not a lot of reason to think Intel's good fortune filled its competitor's sails. AMD's share of the mobile market remains just a fraction of Intel's, and the company's Phenom II faces increased pressure from Intel's Lynnfield/Core i5 platform. The best-case scenario for AMD (and I'll personally be eating crow on this tomorrow if I'm wrong) is that the company reports flat sales for Q3 after seasonal trends are taken into consideration, while the shift to 45nm reduces its cost-per-processor. If all goes well, AMD will report that it narrowed the gap between its net revenue and operating loss, but CEO Dirk Meyer won't have an easy time returning the company to profitability by Q4.
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3vi1 replied on Thu, Oct 15 2009 8:22 AM

At least now Intel has plenty of cash to pay the $1.45B EU fine. Assuming their lawyers don't keep the EU tied up until the sun swells to a red giant and engulfs the earth.

I suspect you'll be proven correct about AMD, but I'll happily share some crow if they do much better than expected.

What part of "Ph'nglui mglw'nafh Cthulhu R'lyeh wgah'nagl fhtagn" don't you understand?


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realneil replied on Thu, Oct 15 2009 8:38 AM

It's good to see them doing well. I assume that a trickle down effect will help other sectors of the electronics industry survive our hard times of late.

I'd like to see a pretty picture for AMD as well, only to help ensure competition and keep prices from skyrocketing on us.

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Not surprising considering Intel's recent dominance and their new advertising campaign is pretty great too!

Rob over at Techgage picked out some good ones. Worth checking out:

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kid007 replied on Thu, Oct 15 2009 5:40 PM

this is what happen when you make a product that everyone likes. MONEY MONEY and heck of a lot of investors dying to double on that cash...

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Jeremy replied on Thu, Oct 15 2009 10:16 PM

AMD will look better in Q4 due to the strength of their GPU portfolio. Unless nVidia brings their DX11 stuff to market soon (and there's no indication they will), AMD will own both performance and price/performance crown in video for the foreseeable future. If they could bring their processor tech back into the mix the same way they have on the GPU scene, they'd be pretty much golden.

It still boggles my mind that AMD hasn't come out with a competitor for the Atom/Ion yet. They have the tech available in house to really mop up if they couple a good low power processor (like the Atom) with their IGP tech (like Ion).

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gibbersome replied on Thu, Oct 15 2009 10:56 PM

Jeremy, I couldn't have said it better.

I have been waiting for a good CPU+GPU solution from ATI since their merger with AMD, but the best I've seen is the integrated 3200 which was a great start, but nothing since.

I'm not terribly excited about Larrabee and this is where AMD has a chance to shine.

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Dev replied on Sun, Oct 18 2009 2:34 PM

I don't see this as an affirmation of just Intel doing well (which is also true) rather that the computer industry trends of boom after boom are likely to continue in the long term. It isn't just Intel, look at Apple, Google, Microsoft and the rest of the giants. Wall St. has always had a love affair with the tech industry. 

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Joel H replied on Mon, Oct 19 2009 4:40 PM

Jeremy, Gibbersome,

I've actually written about the reason(s) AMD hasn't yet built a true Ion/Atom competitor.

I discuss the company's strategic positioning and available architecture relative to Atom. I don't discuss Ion per se, but we already know that AMD is working on improving its integrated video capabilities at all price points and power draws. No one really questions whether or not AMD could handle the video side of the equation, so it's the CPU side that matters more.

Keep one thing in mind. Atom is not a Core 2 Duo derivative, it's an entirely different architecture that sacrifices much of what makes modern processors powerful (Out-of-order execution, larger caches, execution units, etc). AMD *could* design an Atom competitor, but design is the operative word. Rather than do so, the company is aiming to create a higher market bracket that Atom doesn't currently address well.

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gibbersome replied on Mon, Oct 19 2009 10:57 PM

Thanks, just finished reading your article. Having registered recently, I missed many good articles.

With limited resources and having been in the red for so long, it makes sense for AMD to focus instead on its strenghts. With the release of the ATI 5000 series, the mobile GPU market is ripe for the taking. AMD's answer to Atom might be a ways off, much to the detriment of the consumer, but it would be worse to have them go out of business altogether.

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