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Intel Felt Some Chinese Pain in the Fourth Quarter

By Anders Bylund - Updated Apr 23, 2019 at 8:34PM

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The chip titan is setting up for a quiet 2019, assuming that the trade tensions with China won't end anytime soon.

Semiconductor giant Intel ( INTC -1.56% ) reported fourth-quarter results last Thursday. Here's a quick look at the most interesting data and management comments.

Intel's fourth-quarter results: The raw numbers

Metric

Q4 2018

Q4 2017

Year-Over-Year Change

Revenue

$18.7 billion

$17.1 billion

9.4%

Net income

$5.2 billion

($687 million)

N/A

GAAP earnings per share (diluted)

$1.12

($0.15)

N/A

Data source: Intel.

The year-ago period included a $5.4 billion tax charge, resulting from the Trump administration's wide-ranging tax reform. Backing out that unique item and a few smaller one-time charges, Intel's adjusted earnings rose 19% to land at $1.28 per diluted share.

What happened with Intel this quarter?

  • Fourth-quarter revenue came in $350 million below Intel's guidance due to slow sales to the cloud-computing sector and soft demand from China. Management also pointed to rapidly dropping demand for Intel's wireless modem chips and an unstable environment for NAND memory chip pricing.
  • The client computing group saw sales rising 10% year over year, stopping at $8.5 billion. Data center revenue increased 9% to 6.1 billion. These two key segments accounted for 85% of Intel's total sales in the fourth quarter and 87% of the company's full-year revenue.
  • Sales in the Internet of Things segment fell 7% year over year but rose 9% for the full year, pointing to a surging but lumpy revenue stream.
  • The Optane high-speed memory technology drove Intel's nonvolatile memory sales 25% higher in the fourth quarter, landing at $1.1 billion.
An empty chip socket awaiting a processor in the middle of a bright blue circuit board.

Image source: Getty Images.

What management had to say

In a conference call with analysts, interim CEO and permanent CFO Bob Swan noted that the company still hasn't found its next full-time CEO and that the search continues. He moved on to provide this overview of Intel's fastest-growing business line:

Mobileye revenue was $183 million, up 43% over last year as design wins and [advanced driver-assistance systems] adoption continue to accelerate. ... In autonomous driving and ADAS, Mobileye's effort to lead this revolution continues to build momentum with 28 new design wins and 78 vehicle model launches in 2018. In the fourth quarter, we announced plans to commercialize mobility as a service in Israel with Volkswagen and Champion Motors making Mobileye's breadth of products, technology, and services unmatched in the industry. Mobileye's products now span from open ADAS and AV compute platforms to turnkey vehicle retrofits to, ultimately, mobility as a service.

Looking ahead

Swan expects 2019 to be another record year for Intel due to the ever-growing demand for analysis, transmission, and storage of data. That being said, he also thinks it prudent to set reachable goals in this unpredictable market as political trade tensions continue to set the tone for global computing growth.

"I would say today our outlook is a little more cautious than it was few months ago," Swan said. "And we try to take into account both the macroeconomics, the geopolitical risks, the modest inventory build as we enter the year and the competitive environment. We've taken those into account and reflected them the best we can as we go into the year."

That cautious outlook resulted in the following full-year and first-quarter guidance targets:

  • Full-year revenue should land near $71.5 billion with an operating margin of roughly 34%. That would be a year-over-year sales increase of approximately 1% on flattish operating margins.
  • Free cash flows should grow 12% to something like $16 billion.
  • In the first quarter, revenue should hold relatively steady year over year at $16 billion. GAAP earnings are seen falling 13% lower, landing near $0.81 per diluted share.

Check out the latest Intel earnings call transcript.

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