Intel Q1 Earnings Reflect Expansion Of Emerging Markets, Channel Business

Intel on Tuesday reported record revenue and earnings-per-share (EPS) figures in its financial results for Q1 2011, and Intel CEO Paul Otellini said Intel’s channel partners are essential to its product strategy in the key emerging markets segment.

Intel said its first quarter revenue totaled $12.8 billion, up from $10.3 billion, or 25 percent, from the same quarter last year. The company posted net income of $3.2 billion, up from $2.4 billion, or 29 percent, year-over-year.

Otellini said in a statement that Intel’s Q1 results, combined with its guidance for the second quarter, have positioned the company to achieve 20 percent annual revenue growth. Otellini also re-iterated his belief that Intel’s Sandy Bridge platform is the best product Intel has ever brought to its customers, which he said Intel was only able to do with aid from channel partners and their ability to adjust to Intel’s Sandy Bridge recall in February.

’The ramp in the channel was the fastest we’ve ever seen and sell-through has been robust as well,’ Otellini said. ’Rapid recovery from Cougar Point issues last quarter enabled a much faster ramp for Sandy Bridge than previously expected in January.’

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Otellini said Intel’s customers in Q1 replenished approximately half of the inventory depleted in Q4 primarily with Sandy Bridge products. He said Intel’s PC client business grew 17 percent from last year.

Otellini said he disagrees with analysts who forecast sluggish returns for the overall PC market, and said that while some distribution channels such as retail offer greater visibility, other channels that aren’t as visible are driving Intel’s growth in emerging markets. ’The channel strength for Sandy Bridge is definitely in emerging markets,’ he said. ’Consumer demand in U.S. and Western Europe was soft, but demand in emerging markets was better than expected. It was our best product mix in many years.’

Otellini said emerging markets account for well over 50 percent of Intel’s total business and that the growth of emerging markets is determined in part by the ’dynamics of economics’ as products become increasingly desirable and affordable for some two billion consumers.

NEXT: Intel’s Server Growth

Intel CFO Stacy Smith re-iterated that Sandy Bridge was the fastest ramping product in the company’s history. He said lower throughput time and increased first quarter output allowed Intel to make up unmet customer demand. Smith also mentioned the company’s success in emerging markets in particular. ’Gains in emerging markets made up for weak demand in mature consumer markets in Q1,’ Smith said.

Otellini said Intel achieved double-digit growth across every major product segment in the market. In particular, he said revenue for Intel’s Data Center Group was up 32 percent, revenue was $2.5 billion, and operating profit came to nearly 50 percent. He said Intel’s embedded business grew 33 percent, its NAND flash business grew by 17 percent, and its Digital Home group grew 129 percent since last year.

Part of Intel’s success in the data center is due to the launch of single-socket Sandy Bridge Xeon products in Q1, which Otellini said saw strong early demand. Moreover, Otellini said data centers are connecting to the Internet one way or another, and that Intel has benefited from that shift.

’What we’re seeing is an explosion of devices that connect to the Internet,’ Otellini said. ’And Intel is a big part of this trend.’

Otellini said he expects Intel-based phones featuring the company’s upcoming Medfield smartphone processors to come to market in about twelve months time. He said Intel is on track to introduce 22-nm silicon process technology by the end of the year and said the company is continuing to follow Moore’s Law in executing its product roadmap. ’It’s too early to call 2012,’ he said. ’But we see no reason for growth to be any different from what it was in 2011.’

As for differentiating its products from processors based on Cambridge, U.K.-based ARM’s chip designs, Otelini said Intel’s platforms offer features integrated into the microprocessor that involve high ROI investments, but also offer significant opportunity – including power management and performance.

’In terms of ARM, it isn’t just about the core,’ Otellini said. ’It’s about the other capabilities and the power envelope on the SOC. Intel’s advantage is a combination of robust compute architectures that can scale and a wider array of architectures that we bring in.’

NEXT: Intel’s Mobile Strategy

As for Intel’s strategy in the mobile market, where ARM dominates but where Intel has repeatedly said it intends to grow, Otellini re-iterated the company’s multi-OS strategy while offering some indication as to which mobile platform Intel will adopt right away. ’My sense is the bulk of the SKUs this year will be Android,’ Otellini said.

Intel closed its acquisition of both Infineon Wireless and security vendor McAfee in Q1, and according to Intel the combination of both acquisitions contributed revenue of $496 million to its total Q1 revenue. Smith said Intel will gradually provide additional visibility into its operation of McAfee.

Intel forecasted Q2’11 GAAP revenue at about $12.8 billion. The company said it expects gross margin of approximately 61 percent in Q2. As for the full-year, Intel said it expects 63 percent gross margin in 2011, and said it expects to spend about $15.7 billion on R&D and MG&A.

Finally, Otellini said Intel is preparing to unveil ’revolutionary’ technology at a press event in early May, but wouldn’t offer any specifics during the conference call. ’When you hear that announcement, you’ll know why that expression is appropriate,’ Otellini said.