Intel Revenue Will Exceed Previous Q4 Expectations

Tom Krazit, IDG News Service

Intel is planning for a happy holiday season this month, as it expects to exceed its previous revenue guidance and has made progress in reducing its inventory, the company said Thursday.

Fourth-quarter revenue is now expected to fall between $9.3 billion and $9.5 billion, Intel said in a release. When it reported third-quarter earnings in October, the Santa Clara, California, company expected to record between $8.6 billion and $9.2 billion in revenue.

The midpoint of the new range, $9.4 billion, would represent an 8 percent increase from fourth-quarter 2003 revenue of $8.74 billion, which was a company record at the time. The fourth quarter is usually Intel's best quarter of the year, driven by consumer purchases of PCs for the holiday shopping season. Worldwide demand for Intel's desktop, notebook, and server processors has been strong in this fourth quarter, the company said. It is a good ending to a year filled with missteps for Intel.

Inventory Reduced

Inventory management has been a problem at Intel this year after the company overproduced chips in hopes of stronger growth in the second half of the year. Intel also saw a higher percentage of working chips emerge from its new 90-nanometer wafers than it expected, leading to a decision to slow down production of new silicon wafers in the second half of the year. Those efforts are paying off, as net inventory should decrease by several hundred million dollars in the fourth quarter, Intel said.

"Now we're right about where we want to be" in terms of inventory, said Andy Bryant, Intel's chief financial officer, on a conference call following Intel's announcement.

In October, Intel thought it wouldn't be able to increase production at its new 300-millimeter facilities until the first quarter of 2005 because of the inventory buildup and an uncertain fourth-quarter demand forecast, Bryant said. The new manufacturing facilities make wafers that are 300mm wide, which allows more chips to be cut from them than are possible from older 200mm wafers. This reduces Intel's costs per chip.

However, Intel has been able to increase production at those newer factories sooner than it expected because of strong demand, Bryant said. Because Intel held back on increasing production in the early part of the quarter, it might have missed an opportunity to make even more revenue, Bryant said. He confirmed that some Intel customers experienced product shortages during the quarter, but said the number of orders that did not get filled was relatively small.

No FY2005 Projections

Financial analysts on the conference call peppered Bryant with questions about his outlook for the first quarter, but he refused to comment. He did allow that demand appears to be increasing at the same time that production is increasing, which would permit Intel to capture some of the revenue opportunities it missed in the fourth quarter.

Intel chief executive officer Craig Barrett and president and chief operating officer Paul Otellini will address the financial-analyst community next week in New York. The executives are expected to discuss Intel's new platform-approach to processor marketing, as well as a more detailed look at the upcoming year.