Intel: The Worst Is Behind Us

Intel, with first-quarter revenue falling slightly less than Wall Street had projected, has proclaimed that "the worst is behind us" in terms of the sharply contracting market for its microprocessors and other computing products.

"We believe that PC sales bottomed out during the first quarter and that the industry is returning to normal seasonal patterns," said Intel CEO Paul Otellini during the company's first-quarter earnings report on Tuesday.

For the quarter, the company had sales of $7.1 billion, down 26 percent from $9.7 billion reported the first quarter of 2008 and down 13 percent sequentially. Intel's net income of $647 million represented a 55 percent decline against $1.44 billion posted for the year-ago period, but also 176 percent better than its industry-shaking fourth-quarter performance, due to significant inventory reduction, downsizing and other cost-cutting measures, as well as lower-than-expected charges and investment losses.

While Intel's revenue and profit were down by double digits compared to the first quarter of 2008, the company slightly outperformed projections by analysts, not to mention some early quarter speculation that Intel might miss turning a profit for the first time in more than 80 quarters.

Otellini said the first sign that "the worst is behind us" was a leveling of demand for Santa Clara, Calif.-based Intel's desktop PC processors, sold mainly through the company's partner channel of system integrators and whitebox makers.

"When we saw that stabilizing in the first part of the quarter, that was the first stake in the ground," Otellini said, referring to his company's conclusion that the very worst repercussions of the global economic recession are in Intel's rearview mirror. While Intel's mobile product sales have been slower to hit the theoretical bottom, Otellini explained that a "shorter inventory pipeline" for desktop products provided "more visible demand recovery" beginning in early February.

Intel's Digital Enterprise Group, which sells desktop and server products, saw its revenue fall 11 percent sequentially, from sales of $4.5 billion in the fourth quarter of 2008 to just over $4 billion in the just completed period. The group's revenue was also down 26 percent year-over-year, from $5.4 billion in the first quarter of 2008.

Revenue for the chip giant's Mobility Group was down 17 percent sequentially, from $3.5 billion in the last quarter of 2008 to $2.9 billion in this year's first quarter. The group's sales measured against last year's first quarter were down 21 percent. And for the first time since their introduction in 2008, Intel's low-power, netbook-friendly Atom processors didn't see sequential revenue growth -- sales fell to $219 million in the first quarter, down 27 percent from the fourth quarter.

But Intel also managed to reduce its inventory by 19 percent against its fourth-quarter levels and saw its partner channel follow suit, said CFO Stacy Smith.

"We saw a significant burn-off of the overhang of channel inventory. If anything, it burned off quicker than we thought. In general, when we look at channel inventories, they look lean across the supply chain," he said.

While Intel would not provide official guidance for the second quarter or beyond, Smith and Otellini said "internally" that the company is expecting second-quarter sales to hover around the first quarter's $7 billion mark. Consumers, small businesses and the public sector will apparently be counted on to fill Intel's coffers for some time to come -- Otellini predicted that enterprise customers would continue "keeping their wallets shut for a while."