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Christmas Misses Intel As Q4 Earnings Plummet

CRN Staff

Intel's fourth-quarter financials were as dismal as the Santa Clara, Calif.-based chip maker had been warning in recent weeks and the company hinted for the first time that it may not be able to strictly maintain its "tick tock" product development model in the face of a prolonged economic recession.

Intel, which reported its fourth quarter results at the close of markets Thursday, saw revenues drop 19 percent sequentially to $8.2 billion, marking the first time in years that Intel had sold less in the fourth quarter than in the third, according to CEO Paul Otellini.

Intel saw an "unprecedented, rapid hitting of the brakes in the fourth quarter" in terms of demand for its products from its distribution channel, branded computer makers and components makers in Taiwan and China, Otellini said, leading to a sharp decline in utilization rates at its manufacturing facilities and lower revenues in all geographies sequentially and year-over-year.

Intel's fourth quarter revenues were down 23 percent year-over-year. Overall, the chip maker brought in $37.6 billion in 2008, down 2 percent from 2007. Annual net income numbers showed a similar decline, with Intel reporting $5.3 billion in profits, a 24 percent drop from the previous year.

Intel's quarterly decline in net income was much more dramatic. The company cleared $234 million in the just-concluded quarter, down 88 percent against Q3 and down 90 percent against Q4 2007.

Intel executives alternated between guarded optimism and worst-case pessimism during Thursday's earnings call. At one point Otellini was asked by an analyst to "ignore the economy for a minute" and talk about the netbook market in 2009, to which request the Intel CEO quipped, "That's like asking Mrs. Lincoln what the play was like."

But Otellini also promised that Intel would meet meet all of its major product development targets in 2009, which include kick-starting its next-generation 32-nanometer fabrication process and ramping its new Nehalem micro-architecture across its mainstream desktop and notebook product lines.

And while Intel would not provide "formal" financial guidance for this quarter, the company did say that "for internal purposes, the company is currently planning for revenue in the vicinity of $7 billion."

Next: 'Tick-Tock' On Hold?

Putting on his optimistic hat, Intel CFO Stacy Smith predicted that the first quarter of 2009 would be the "trough" in the poor economic climate for Intel, with recovery beginning in Q2.

But just in case things get worse for longer before they get better, Smith offered clear indications that Intel would be prepared to alter its product development roadmap in 2009, beginning with the upcoming transition to the 32nm process, codenamed Westmere.

"We will absolutely modulate the ramp rate of the process depending on demand," Smith said, adding that Intel could also choose to accelerate older processor lines to 32nm if the situation warrants. Major new product lines from Intel often require significant investments in various new and expensive hardware components as well. Could Intel be contemplating making Westmere-class products that are backwards-compatible with older hardware platforms?

While there are plenty of events to play out before that happens. Smith's comments, which he repeated several times Thursday, seem to indicate that Intel is not rigidly committed to its well-advertised "tick-tock" model -- the product development schedule that methodically alternates process technology shrinks ("ticks") with micro-architecture improvements ("tocks") on a biannual basis.

Intel could conceivably continue to hit its upcoming "tick-tock" targets on a technical level, give or take a quarter, such as the 32nm transition. But if the product development cycle Intel has honed so perfectly over the past few years ceases to ramp across major product lines before the next big target arrives, observers might begin to wonder if the cycle can still be called "tick-tock."

Intel is widely credited with driving the pace of microprocessor innovation at both the manufacturing and architectural levels thanks to its metronomic execution of "tick tock." On Thursday, the chip giant gave signs that it is prepared to be nimble enough to fine tune that model as need be if its own preferred pace is skewing sharply out of time with depressed market demand for expensive new technologies.

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