Demand Boosts Intel's Q1 Revenue to US$8 Billion

SAN FRANCISCO (04/18/2000) - Customer demand for Intel Corp.'s products boosted the U.S. chip giant's first-quarter revenue to US$8 billion, a rise of 13 percent on the $7.1 billion revenue it reported for the year-ago quarter, Intel announced today.

However, two Intel senior executives on a conference call this afternoon admitted that the level of customer demand was stronger than the company had expected. They predicted that the supply of some Intel chips will remain tight, while customer demand continues to be high, as the company enters the second quarter of this year.

"Demand was higher than is seasonally typical (in the first quarter of fiscal 2000)," said Andy Bryant, Intel's senior vice president, chief financial and enterprise services officer, on today's conference call. "We didn't anticipate the level of demand. Our inventory has been lower (than needed) for months, we're not likely to rebuild our inventory in the second quarter. Supply will continue to be a challenge."

Intel has effectively "undercalled demand" since the third quarter of fiscal 1999, Bryant said. "We had too low a baseline, maybe we were wrong. We are making sure we have the capacity in place to meet future demand," he added.

"The PC market caught everyone by surprise with its health," said Mario Morales, director, semiconductor research, with International Data Corp. (IDC), based in Mountain View, California, in a phone interview today. Increased demand for PCs in the first quarter of this year was largely driven by consumers, but last month PC demand also begun to rise among corporate customers, Morales said.

Not being able to match the demand for its products "puts Intel in a very tough position and leaves room for competition" such as Intel's bitter rival Advanced Micro Devices Inc. (AMD), Morales said. However, all chip makers are in the same boat. PC makers no longer hold semiconductor inventory as they tend to build computers to order so there's a lot more volatility on the supply side for microprocessors, according to Morales. "It's very difficult to predict what the demand (for chips) will be a few months out," he added.

Intel CFO Bryant expects even stronger demand for the chip maker's products in the second half of this year, as the company ramps up its 0.18-micron manufacturing operations. "We will have enough output to meet a strong second half," he said. Currently, Intel has 5 fabrication plants (fabs) with 0.18-micron manufacturing capabilities and there will be a total of 8 such fabs by the end of this year, Bryant added.

Both Intel and AMD are moving from 0.25-micron technology to the smaller 0.18-micron manufacturing technology which shrinks the size of the processor die, thereby facilitating both faster processor speeds and lower power consumption, according to analysts.

Intel's transition from 0.25-micron to 0.18-micron manufacturing is on track to reach a crossover point in the second quarter of this year, where more than 50 percent of Intel's chips will be made using 0.18-micron manufacturing, according to Paul Otellini, executive vice president, general manager, Intel Architecture Business Group, also on today's conference call. "We'll exit the year at 90 percent (0.18-micron manufacturing)," he said.

"Intel is planning for growth in all its businesses," Bryant said, adding that the company expects to spend $3.9 billion on research and development for fiscal 2000 as a whole, up from the $3.1 billion it spent on R&D in fiscal 1999.

As reported earlier this month, Intel is planning capital spending of $6 billion this year, mostly on machinery, equipment and the construction of new fabs as a way to meet increased demand for its products, according to Bryant.

The $6 billion capital spending is nearly double the $3.4 billion Intel spent last year. [See "Intel to Spend $6 Billion This Year to Meet Demand," April 10.]For the quarter ended April 1, 2000, excluding costs related to acquisitions, the U.S. chip maker recorded net income of $3.1 billion, 52 percent higher than the first quarter of 1999, Intel said in a statement issued today. Earnings per share excluding acquisition-related costs were 88 cents, up 52 percent on the 58 cents reported for the first quarter of fiscal 1999.

A group of 32 brokers polled by First Call/Thomson Financial estimated that Intel would record earnings per share of 69 cents for the first quarter of fiscal 2000.

Including acquisition-related costs, Intel reported first-quarter net income of $2.7 billion, or 78 cents earnings per share, up 30 percent and 37 percent, respectively, on the year-earlier quarter.

Although Intel's results were released after the market closed today, the company's shares closed today at $129, up on yesterday's last trade of $123.

Intel is one of the high-tech companies that quickly recovered from Friday's collapse of both the Nasdaq and the Dow. The chip maker's stock dropped to $110.5 Friday.

Intel, based in Santa Clara, California, can be contacted at +1-408-765-8080 or via the Internet at http://www.intel.com/.

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