Intel Third-Quarter Revenue $8.5 Billion; Earnings Per Share of 30 Cents Includes Tax Benefits 10/12/2004 4:15:00 PM SANTA CLARA, Calif., Oct 12, 2004 (BUSINESS WIRE) -- Intel Corporation today announced third-quarter revenue of $8.5 billion, up 5 percent sequentially and up 8 percent year-over-year. Third-quarter net income was $1.9 billion, up 8 percent sequentially and up 15 percent year-over-year. Earnings per share were 30 cents, up 11 percent sequentially and up 20 percent from 25 cents in the third quarter of 2003. "Intel delivered growth in both of its major businesses in the third quarter driven by record server and mobile microprocessor shipments and market segment share gains in flash memory," said Intel CEO Craig R. Barrett. "Growth was not as high as we originally anticipated due to inventory adjustments at some of our major customers and lower than expected overall demand for PCs. "Intel crossed over to 90nm technology in microprocessor shipments to the computing market segment for the quarter and built 65nm memory chips containing more than half a billion transistors each, reflecting the company's long-term strategy of ********* in leading-edge process technology. We also returned more cash to our stockholders with a $2.5-billion share re-purchase, our largest ever." Intel's results for the third quarter of 2004 included tax-related items that increased earnings-per-share by 3.6 cents; additional information about these tax items is included in the Financial Review section of this release. Intel's results for the second quarter of 2004 included tax-related items that increased earnings by 1.7 cents per share. The company's results for the third quarter of 2003 included a tax benefit related to a divestiture that increased earnings by 1.9 cents per share. BUSINESS OUTLOOK The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. Please see the Risk Factors Regarding Forward-Looking Statements in this release for a description of certain important risk factors that could cause actual results to differ, and refer to Intel's annual and quarterly reports on file with the Securities and Exchange Commission (SEC) for a more complete description of the risks. These statements do not include the potential impact of any mergers, acquisitions, divestitures or other business combinations that may be completed after Oct. 11, 2004. -- Revenue in the fourth quarter is expected to be between $8.6 billion and $9.2 billion. -- Gross margin percentage for the fourth quarter is expected to be approximately 56 percent, plus or minus a couple of points. The gross margin percentage could vary from expectations based on changes in revenue levels, product mix and pricing, manufacturing yields, changes in unit costs, capacity utilization and the existence of excess capacity, and the timing and execution of the manufacturing ramp and associated costs. -- Expenses (R&D plus MG&A) in the fourth quarter are expected to be between $2.4 billion and $2.5 billion. Expenses, particularly certain marketing and compensation expenses, could vary from expectations depending on the level of demand for our products and the level of revenue and profits. -- R&D spending for 2004 is expected to be $4.7 billion, slightly below the previous expectation of $4.8 billion. -- The capital spending expectation for 2004 is unchanged at between $3.6 billion and $4.0 billion. -- Gains from equity investments and interest and other in the fourth quarter are expected to be approximately $65 million. -- The tax rate for the fourth quarter is expected to be approximately 30.5 percent. The tax rate expectation is based on current tax law and current expected income, and assumes Intel continues to receive tax benefits for export sales. The tax rate may be affected by the closing of acquisitions or divestitures, the jurisdiction in which profits are determined to be earned and taxed, the resolution of issues arising from tax audits with various tax authorities and the ability to realize deferred tax assets. -- Depreciation for the fourth quarter is expected to be between $1.1 billion and $1.2 billion. -- Amortization of acquisition-related intangibles and costs is expected to be approximately $40 million in the fourth quarter and approximately $180 million for the full year. THIRD-QUARTER REVIEW AND RECENT HIGHLIGHTS Financial Review -- The gross margin percentage for the quarter was 55.7 percent, as compared to the revised expectation of approximately 58 percent, plus or minus a couple of points, primarily due to higher than expected inventory reserves; higher than expected motherboard and chipset units and lower than expected processor units in the revenue mix; and an inventory write-down as a result of lower chipset unit costs. -- The effective tax rate for the quarter was 21.4 percent, lower than the July expectation of approximately 31 percent and below the September expectation of approximately 29.5 percent. The September expectation reflected the impact of a higher percentage of profits being generated in lower-tax jurisdictions, which increased earnings by 0.6 cents per share. Subsequently, in connection with preparing and filing its 2003 federal tax return and preparing its state returns, Intel reduced its third-quarter tax provision by $195 million, which increased earnings by 3 cents per share. The reduction in the tax provision was primarily driven by additional tax benefits for export sales, along with state tax benefits for divestitures. -- Intel used approximately $2.5 billion in cash to repurchase 106.3 million shares of its common stock under an ongoing program. Key Product Trends (Sequential) -- Intel Architecture microprocessor units were higher and set a third-quarter record. The average selling price was approximately flat. -- Chipset units set a record. -- Motherboard units set a record. -- Flash memory units were approximately flat. -- Wireless connectivity units set a record. Wired connectivity units were lower.