In its third quarter of 1999, Intel reported earnings of $0.55 per share on revenue of $7.33 billion, so the fourth-quarter estimate calls for 14.5% sequential EPS growth. Revenue should rise considerably, and Intel's gross margin should rise to around 60%. Margins for the third quarter of 1999, for comparison, were:
3Q99 Gross Profit 58.7% Operating Profit 34.2%* Net Profit 25.9%* *on a pro forma basis that excludes one-time acquisition and other charges
Margins measure the efficiency of a business. Gross profit is what is left after the cost of the product is deducted from sales. Intel has a high gross profit margin when compared to the total universe of public companies. For every $1 worth of product (typically computer chips) sold last quarter, Intel paid only 41.3 cents to produce it, meaning it cleared 58.7 cents.
Operating margins are found after deducting more costs, namely, the costs of running the business. Operating costs include salaries, rent, research and development, and anything else that goes into running the business. For every dollar of revenue earned in the third quarter of 1999, Intel spent about 24.5 cents running the business and paying employees. After adding this figure to the cost of the product itself, Intel was left with 34.2 cents in profit from every dollar of sales. Again, this is a very high operating profit, or margin, compared to the universe of public companies.
Net profit margin is what is left from sales after taxes, interest expenses, and other non-operating costs are deducted from the operating expense. Intel had 25.9% profit margins last quarter. Exceptional. Tomorrow, Friday, and next week we'll see how efficient the business was this time around when we study fourth-quarter results. Keep in mind that margins are just the start.
On Thursday, Intel will report results and hold its conference call in the late afternoon (Eastern Time), so that means that we'll only be able to quickly summarize the results tomorrow before this column is published. Beginning on Friday, however, we'll have much more to say.
To prepare for the company's quarterly report and compare tomorrow's results to past results, here are useful links:
Intel's Q3 Conference Call Summary and Look Ahead (10/13/99)
Intel's Q3 Results Covered by Drip Port (10/12/99)
Intel's Investor Relation Page and Q4 Conference Call Info
Intel's Message Board
Until tomorrow, think long term and Fool on!
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