Intel Reports Second Quarter Revenue Of $6.3 Billion

Second Quarter Earnings Excluding Acquisition-Related Costs* $0.12 Per Share
Second Quarter Earnings Per Share $0.03

Intel Investor Relations Web site: www.intc.com


Q2 earnings announcement call live on Web site at 2:30 p.m. PDT
Conference call replay number: (719) 457-0820; access #599716
Replay available shortly after end of conference call through July 24

* Acquisition-related costs consist of one-time write-offs of purchased in-process research and development and goodwill, and the ongoing amortization of goodwill and other acquisition-related intangibles and costs. Intangibles include, for example, the value of the acquired companies' developed technology, trademarks and workforce-in-place. Earnings excluding acquisition-related costs differ from earnings presented according to generally accepted accounting principles because they exclude these costs.

SANTA CLARA, Calif., July 17, 2001 -- Intel Corporation today announced second quarter revenue of $6.3 billion, down 24 percent from the second quarter of 2000 and down 5 percent sequentially.

For the second quarter, net income excluding acquisition-related costs* was $854 million, down 76 percent from the second quarter of 2000 and down 22 percent sequentially. Second quarter earnings excluding acquisition-related costs were $0.12 per share, a decrease of 76 percent from $0.50 in the second quarter of 2000 and down 25 percent sequentially. During the second quarter, the estimated tax rate for the year, excluding the impact of acquisition-related costs, was revised to 25.7 percent, lower than the previous expectation of 29.8 percent, resulting in an increase to earnings of approximately $0.01 per share. Last year's second quarter results included a gain on investments of $2.1 billion, primarily from the sale of assets in the Intel Capital portfolio, which compares to a $3 million gain in the second quarter of 2001.

Including acquisition-related costs in accordance with generally accepted accounting principles, second quarter net income was $196 million, down 94 percent from the second quarter of 2000 and down 60 percent sequentially. Earnings per share were $0.03, down 93 percent from $0.45 in the second quarter of 2000 and down 57 percent sequentially, including an increase of $0.02 per share due to the lower estimated tax rate for the year of 25.7 percent.

Acquisition-related costs in the second quarter consisted of $123 million in one-time charges for purchased in-process research and development and $594 million of amortization of goodwill and other acquisition-related intangibles and costs.

"Intel's second quarter results met our overall expectations as our microprocessor business performed better than expected, with sequential growth in units, while our communications and flash businesses remained soft," said Craig R. Barrett, president and chief executive officer. "Our investments in R&D and manufacturing allowed us to introduce industry-leading products across all computing segments and ship our first 0.13-micron-based products ahead of schedule. Looking forward, our strong product line-up and cost-efficient manufacturing capabilities provide Intel with a significant competitive advantage."

Accelerated Microprocessor Roadmap
Intel also said it has initiated a major acceleration of its desktop microprocessor product line to provide a more rapid transition from the Pentium® III processor to the Pentium® 4 processor.

"The combination of a strong product family, solid manufacturing performance, and early availability of the new Intel® 845 chipset platform allows Intel to aggressively ramp the Pentium 4 processor into all mainstream PC price points by the end of the year," said Barrett. "This move will bring unprecendented value and capabilities to all computer users, especially as they move to adopt Windows* XP."

During the quarter, the company completed the acquisition of VxTel, and announced and completed the acquisitions of Cognet and LightLogic. Background on these acquisitions can be found in the Second Quarter Highlights section of this release.

During the quarter, the company paid its quarterly cash dividend of $0.02 per share. The dividend was paid on June 1, 2001 to stockholders of record on May 7, 2001. Intel has paid a regular quarterly cash dividend for over eight years.

During the quarter, the company repurchased a total of 34.1 million shares of common stock, at a cost of $1.0 billion, under an ongoing program. Since the program began in 1990, the company has repurchased 1.5 billion shares at a total cost of $24.2 billion.

BUSINESS OUTLOOK

The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. These statements do not include the potential impact of any mergers, acquisitions or other business combinations that may be completed after June 30, 2001.

Intel plans to provide a mid-quarter Business Update to the Outlook provided below on Sept. 6.

Continuing uncertainty in global economic conditions make it particularly difficult to predict product demand and other related matters.

** Revenue in the third quarter of 2001 is expected to be between $6.2 billion and $6.8 billion.

** Gross margin percentage in the third quarter of 2001 is expected to be 47 percent, plus or minus a couple of points, down from 48 percent in the second quarter, primarily due to an accelerated desktop processor roadmap in the second half. Intel's gross margin expectation for the full year 2001 is 49 percent, plus or minus a few points, lower than the previous expectation of 50 percent, plus or minus a few points. Gross margin percentage varies primarily with revenue levels, product mix, product pricing, changes in unit costs, capacity utilization, and the timing of factory ramps and associated costs.

** Expenses (R&D, excluding in-process R&D, plus MG&A) in the third quarter of 2001 are expected to be between $2.1 and $2.2 billion. Expenses may vary from this expectation depending in part on the level of revenue and profits.

** R&D spending, excluding in-process R&D, is expected to be approximately $4.0 billion in 2001, lower than the previous expectation of $4.2 billion, primarily due to reductions in discretionary spending within ongoing programs.

** Capital spending for 2001 is expected to be approximately $7.5 billion.

** Gains from equity investments and interest and other for the third quarter of 2001 are expected to be zero, due to an expectation of a net loss on equity investments of approximately $100 million, primarily as a result of impairment charges, and will vary depending on equity market levels and volatility, the realization of expected gains on investments, including gains on investments acquired by third parties, determination of impairment charges, losses on equity-method investments, interest rates, cash balances, mark-to-market of derivative instruments and assuming no unanticipated items.

** The tax rate for 2001 is expected to be approximately 25.7 percent, excluding the impact of acquisition-related costs, lower than the previous expectation of 29.8 percent, primarily due to changes in expected income and the distribution of income among various tax jurisdictions.

** Depreciation is expected to be approximately $1.1 billion in the third quarter and $4.2 billion for the full year 2001, higher than the previous expectation of $4.1 billion.

** Amortization of goodwill and other acquisition-related intangibles and costs is expected to be approximately $600 million in the third quarter and $2.3 billion for the full year 2001, higher than the previous expectation of $2.1 billion, due to additional acquisitions that were completed in the second quarter.

The statements by Craig R. Barrett and the above statements contained in this Outlook are forward-looking statements that involve a number of risks and uncertainties. In addition to the factors discussed above, other factors that could cause actual results to differ materially include the following: business and economic conditions and trends in the computing and communications industries in various geographic regions; changes in customer order patterns; changes in the mixes of microprocessor types and speeds, purchased components and other products; competitive factors, such as rival chip architectures and manufacturing technologies, competing software-compatible microprocessors and acceptance of new products in specific market segments; pricing pressures; development and timing of introduction of compelling software applications; excess or obsolete inventory and variations in inventory valuation; continued success in technological advances, including development and implementation of new processes and strategic products for specific market segments; execution of the manufacturing ramp including the transition to 0.13-micron process technology; excess manufacturing capacity; the ability to grow new networking, communications, wireless and other Internet-related businesses and successfully integrate and operate any acquired businesses; impact of events outside the United States, such as the business impact of fluctuating currency rates or unrest or political instability in a locale, such as unrest in Israel; unanticipated costs or other adverse effects associated with processors and other products containing errata (deviations from published specifications); litigation involving antitrust, intellectual property, consumer and other issues; and other risk factors listed from time to time in the company's SEC reports, including but not limited to the report on Form 10-Q for the quarter March 31, 2001 (Part 1, Item 2, Outlook section).

Status of Business Outlook and Scheduled Business Update:
Intel expects that its corporate representatives will meet privately during the quarter with investors, the media, investment analysts and others. At these meetings, Intel may reiterate the Outlook published in this press release. At the same time, Intel will keep this press release and Outlook publicly available on its Web site (www.intc.com). Prior to the Business Update and related Quiet Periods (described below), the public can continue to rely on the Outlook on the Web site as still being Intel's current expectations on matters covered, unless Intel publishes a notice stating otherwise.

Intel intends to publish a Business Update press release on Sept. 6, 2001. From Sept. 1, 2001 until publication of the Business Update, Intel will observe a "Quiet Period." During the Quiet Period, the Outlook as provided in this press release and the company's filings with the SEC on Forms 10-K and 10-Q should be considered to be historical, speaking as of prior to the Quiet Period only and not subject to update by the company. During the Quiet Period, Intel representatives will not comment concerning the Outlook or Intel's financial results or expectations.

A Quiet Period operating in similar fashion with regard to the Business Update and the company's SEC filings will begin Sept. 15, 2001, and will extend until the day when Intel's next quarterly Earnings Release is published, presently scheduled for Oct. 16, 2001.

SECOND QUARTER 2001 BUSINESS REVIEW

Intel Architecture Group


** Microprocessor unit shipments were higher than the first quarter.

** Chipset unit shipments were higher than the first quarter.

** Motherboard unit shipments were lower than the first quarter.

Wireless Communications and Computing Group
** Flash memory unit shipments were lower than the first quarter.

Intel Communications Group
** Unit shipments of Fast Ethernet and Gigabit Ethernet connections were lower than the first quarter.

** Unit shipments of network processing components, which include embedded Pentium III processors, network processors and I/O processors, were lower than the first quarter.

** Unit shipments of microcontrollers were lower than the first quarter.

Financial Review
** Average selling prices of microprocessors in the second quarter were lower than the first quarter.

** Gross margin percentage in the second quarter was 48 percent, within the previous expectation of 49 percent, plus or minus a couple of points.

** Expenses (R&D, excluding in-process R&D, plus MG&A) in the second quarter were $2.1 billion, down 3 percent from first quarter expenses of $2.2 billion and lower than the previous expectation of $2.2 billion to $2.3 billion, primarily due to cost control measures and lower profit dependent expenses.

** On a year-to-date basis, the tax rate was approximately 25.7 percent, excluding the impact of acquisition-related costs, lower than the previous expectation of 29.8 percent. The effective tax rate for the second quarter was 19.7 percent including an adjustment to reflect the new tax rate for the year.

** Gains on equity investments and interest and other were $129 million in the second quarter, slightly higher than the previous expectation of $115 million. The net gain on equity investments was $3 million, including the impact of impairment charges of approximately $220 million.

** Amortization of goodwill and other acquisition-related intangibles and costs was $594 million, higher than the previous expectation of $520 million primarily due to the impact of acquisitions that closed within the quarter.

SECOND QUARTER AND RECENT HIGHLIGHTS

Intel Architecture Group
** In April, Intel introduced the Pentium 4 processor at 1.7 GHz, the company's highest performance microprocessor for desktop computers. In July, Intel extended its performance leadership by introducing the Pentium 4 processor at 1.6 GHz and 1.8 GHz.

** In May, Intel and Compaq Computer announced joint engineering and marketing efforts to address IT customer requirements for low power consumption, increased density and world-class performance in the rapidly growing front-end server market segment. Compaq will use Intel ultra low-voltage (ULV) processors in its forthcoming hyper-dense server architecture, code named QuickBlade, slated for the second half of the year.

** In May, Intel announced plans to introduce a family of carrier-grade, Intel-based server products for the telecommunications industry by the end of the year. Intel and Hewlett-Packard also jointly announced an expanded focus to meet the needs of telecommunications companies and service providers.

** In May, Intel introduced its first generation of Intel® Xeon™ processors based on the NetBurst™ microarchitecture of the Pentium 4 processor. The Intel Xeon processors are initially aimed at high-end and mid-range dual-processor enabled workstations and ship at frequencies up to 1.7 GHz.

** In May, Intel introduced new mobile processors delivering the industry's lowest power consumption and highest performance to the ultra-portable mobile PC segment. The announcement included the Ultra Low Voltage mobile Pentium III processor at 600 MHz, the world's lowest power PC processor, and the Low Voltage mobile Pentium III processor at 750 MHz. Both processors feature Intel® SpeedStep™ technology, combining the industry's highest mobile PC performance with extended battery life.

** In May, Intel announced that computer manufacturers were preparing to introduce their first Intel® Itanium™-based servers and workstations beginning in June. The company expects approximately 25 computer manufacturers to offer more than 35 models this year, as hundreds of hardware and software vendors deliver products in support of Itanium-based systems.

** In June, Compaq Computer and Intel announced a multi-year agreement to accelerate the availability of next-generation enterprise servers based on the Intel Itanium processor family. Compaq will transfer key enterprise processor technology to Intel and consolidate its entire 64-bit server family on the Itanium architecture.

** In June, Intel demonstrated its next-generation mobile processor based on 0.13-micron process technology. To be available in speeds above 1 GHz, the new mobile Pentium III processor-M will provide new power management technologies for thinner, lighter notebooks.

** In July, Intel released two new Intel® Celeron® processors. The desktop Intel Celeron processor at 900 MHz and the mobile Intel Celeron processor at 850 MHz bring higher performance to value-priced PCs.

Wireless Communications and Computing Group
** In April, Intel demonstrated the world's fastest digital signal processor (DSP) architecture for wireless handheld devices. Called the Intel® Micro Signal Architecture (MSA), the new design is capable of operating at speeds of up to 400 MHz, more than twice as fast as other DSPs for wireless handheld devices.

** In April, Intel announced that 26 companies from the Asia Pacific region support the Intel® Personal Internet Client Architecture (Intel PCA) specification for next-generation, 2.5G and 3G phones and digital devices. These wireless device and equipment manufacturers, application developers and service providers are among more than 60 companies that have announced support for Intel PCA since the architecture was introduced in September.

** In May, Intel and British Telecommunications plc's (BT) BTexact Technologies and BT Wireless businesses announced they will work together to develop applications and services for next-generation mobile Internet devices. The businesses also endorsed Intel PCA.

** In May, Intel unveiled a new process technology that combines the core components of today's cellular phones and handheld computers. This integrated, "wireless-Internet-on-a-chip" process technology combines logic, flash memory and analog communications circuitry on a single chip to help enable next-generation wireless Internet access devices with greater processing power and longer battery life.

Intel Communications Group
** In April, Intel announced the acquisition of three companies with key capabilities and technologies in opto-electronics, the electrical components used in optical networking equipment. Intel acquired Cognet and nSerial, two developers of high-speed electronic components for 10 Gigabit Ethernet optical modules. Intel also acquired LightLogic, a leading provider of highly integrated, high-speed optical transponders targeted at the metropolitan market segment.

** In June, Intel introduced a suite of communications products, including software, silicon components and reference designs for building the systems used to transmit voice communications over the Internet. Intel's Voice-over-Packet (VoP) technology will allow telecommunications service providers to offer more services such as voice, fax and data applications at lower cost than today's services.

** In June, Intel announced that it has begun shipping samples of third-generation Gigabit Ethernet adapters. The adapters are optimized for common copper networks and are designed to accelerate the deployment of Gigabit Ethernet networks. In addition, Intel announced that it is in volume production of the industry's first single-chip Gigabit Ethernet controllers. Also during the month, Intel announced an agreement with Cisco Systems to help accelerate Gigabit Ethernet network deployments by helping to ease network migrations to this high-speed networking standard.

** In June, Intel expanded its family of high-speed, wireless LAN products to include the Intel® Wireless Gateway for home and small offices and the Xircom* Wireless Ethernet Module for Palm* m500 series handheld devices.

** In June, Intel introduced the Intel® AnyPoint™ DSL Gateway 4200, which combines an ADSL modem, high-performance router and professional-grade firewall into one product. Also during the month, Intel announced an agreement with Comcast Cable Communications to develop, test and trial an Intel residential gateway product that will enable Comcast customers to create a home network and share a single broadband connection.

New Business Group
** In April, Intel Online Services (IOS) announced service enhancements that give customers more choice and greater flexibility over their outsourced e-Business solutions.

** In April, IOS announced that it will provide co-location services to BBC Technology for the delivery of the BBC's streaming media service to global business clients. BBC Technology is a wholly owned commercial subsidiary of the BBC.

** In July, IOS announced that Sony has chosen IOS to provide managed hosting services for the Japanese version of the popular ImageStation* Web site, an online digital imaging community service.

Technology and Manufacturing Review


** Pentium 4 processor production on 0.18-micron technology has been ahead of expectations, with higher yields, faster frequencies and lower overall unit costs that have enabled the rapid introduction of more powerful processors at lower prices.

** During the quarter, Intel began the first commercial shipments of microprocessors manufactured on 0.13-micron process technology, which enables higher performance and density, and lower power consumption. The first shipments are from the company's Fab 20 facility in Oregon, where the technology was developed. Intel's 0.13-micron technology is scheduled to be in production at four 200 mm wafer facilities this year, and two additional 300 mm wafer facilities in 2002.

** In May, Intel opened the world's first 300 mm wafer research laboratory. Named RP1 (RP stands for research and path-finding), the $250 million facility is the first of its kind dedicated to research in advanced silicon process technologies on new, larger 300 mm wafers.

** In June, Intel announced that researchers have built the world's smallest and fastest transistors, measuring only 20 nanometers in width and using structures that are only three atomic layers thick. Eventually, the technology will allow Intel to build microprocessors containing a billion transistors, running at speeds approaching 20 gigahertz and operating at less than one volt. The announcement increases confidence that computing capabilities can be extended according to Moore's Law for at least another decade.

Intel Capital
Intel Capital, Intel's strategic investment program, makes equity investments to grow the Internet economy on a worldwide basis in support of Intel's strategic interests. Intel Capital invests in companies to establish innovative technologies, develop industry standard solutions, drive Internet growth, and advance the computing platform. Intel Capital also manages acquisitions.

As of the end of the quarter, Intel Capital's strategic equity portfolio included over 550 companies worldwide. The portfolio includes securities of both publicly traded and private companies as follows:

As of June 30, 2001, the total carrying value of the portfolio included approximately $58 million of net unrealized depreciation on the marketable equity securities.

Marketable equity securities include the Intel Capital portfolio holdings classified as trading assets or as marketable strategic equity securities and they are carried at current market value in the balance sheet. Other equity investments are classified as other assets in the balance sheet. They include non-marketable securities carried at the lower of cost or market value, investments accounted for under the equity method, and equity derivatives carried at current market value. Total portfolio value will vary based on a number of factors, including market fluctuations, investments, dispositions and changes in the marketable status of securities.

For more information on Intel Capital's strategy and portfolio, please visit www.intel.com/capital.

FINANCIAL INFORMATION

The financial review section is in the tables following this release. Along with the income statement and balance sheet information, additional information is available from the Investor Relations Web site at www.intc.com in a spreadsheet format that can be downloaded.

Copies of this earnings release and Intel's annual report can be obtained via the Internet at www.intc.com or by calling Intel's transfer agent, Computershare Investor Services, L.L.C., at (800) 298-0146.

The "all other" category includes revenues and earnings or losses from non-reportable operating segments: the Wireless Communications and Computing Group, the Intel Communications Group and the New Business Group. During the second quarter of 2001, the company completed the combination of the operations of the Networking Communications Group and the Communications Products Group to form the new Intel Communications Group.

In addition, "all other" includes certain corporate-level operating expenses, including a portion of profit-dependent bonus expenses that are not allocated to the operating segments.

Released Jul 17, 2001 • 12:00 AM EDT