Intel: Powered Up for Another Hot Year


By Cliff Edwards After Intel's sizzling 2003 comeback, the big question is whether the world's largest chipmaker can follow with a hit to rival its Centrino notebook combo of Pentium M processor and Wi-Fi chip. Investors looking for a good bet in the technology sector in 2004 may need look no further. Sure, Intel could be hard-pressed to top the 60% earnings growth it saw in 2003, but the chipmaker has on tap an extensive lineup for PCs, notebooks, servers, and consumer electronics, experts say. Wall Street expects that to add up to 49% earnings growth this year -- a tidy $8.2 billion.

Intel (INTC) has laid the groundwork for stellar results this year. For the three months ended Dec. 27, it reported net income of $2.17 billion, or 33 cents a share, on revenue of $8.74 billion. During the quarter, Intel took a $611 million charge to write down the value of a company it acquired 4 years ago. A year earlier, it reported net income of $1.05 billion, or 16 cents a share, on revenue of $7.16 billion.

FREE TRIAL. This year, Intel's Architecture Group, which includes PC, notebook, and server chips, expects to zip ahead of the competition, thanks to improvements in speed and other benefits such as wireless connectivity. One of the more technical offerings, which is expected to make a big splash, is a new graphics interface called PCI Express for desktop chips. An Intel standard with broad industry backing, Express is expected to significantly boost PC performance by lifting the speed at which chips can communicate with each other. PCI Express, along with faster memory, could goose desktop sales in the high-end gaming market, where margins are fatter and profits are higher.

On the notebook side, follow-ups to both the Pentium M processors and Centrino Wi-Fi chips are likely to keep sales humming. And by switching to advanced manufacturing techniques, Intel can churn them out at a fraction of the cost of rivals such as Advanced Micro Devices (AMD), helping to boost overall margins to a juicy 64%.

While research firm IDC recently lowered its long-term forecasts for sales of Intel's high-end Itanium 2 server chip, it still predicts the chip will represent an $8 billion market by 2007. Intel Senior Vice-President Mike Fister revealed that just a month after the world's 500-largest companies were offered free, 90-day trials of Itanium servers, a dozen have signed up, with as many as 100 regarded as likely prospects to enroll by yearend. Should those outfits like what they see, sales could rise significantly, particularly if, as expected, tech spending picks up more steam in the second half of 2004.

INTEL AT HOME. And even if tech outlays in the U.S. disappoint, Intel has the rest of the world to play with. About 70% of revenues now come from outside the U.S., up from 53% five years ago. Intel logs 30% of its sales in the fast-growing Asia-Pacific market, up from just 15% in 1998.

Is there more running room left for this bustling stock? Intel's stock price jumped more than 80% in 2003 and is expected to rise again after investors consolidate gains made in the recent runup of tech stocks. Intel shares are trading just off a 52-week high of $34.60. Analysts see them hitting $38.50 this year, up an additional 15%.

Although Intel commands the PC realm, it may have a harder time with its push into consumer-electronics chips. Still, it's putting more than $200 million behind the effort (see BW Online, 1/7/04, "Intel Bets Big on the Digital Home").

BLURRING LINES. At the recent Consumer Electronics Show in Las Vegas, Intel President Paul Otellini spelled out how serious the chipmaker is about getting into the market. It will make a chip that could sharply reduce the cost of large-screen TVs, he said, and it will build another for "entertainment PCs" -- units roughly the size and shape of a VCR that will consolidate the functions of TV tuner, DVD player, music console, photo album, and gaming console, and which should be in stores later this year.

"Over 350 million digital devices will be sold into the home this year," Otellini said. "The lines between the two industries [computers and consumer electronics] are blurring. Consumers are demanding change inside their homes. We all want to have multiple video streams."

Intel also is making graphics chips for handheld computers, pushing into digital-imaging chips, and planning to roll out WiMax, a Wi-Fi standard that may help bring the Internet to rural areas and developing countries at a fraction of today's cost (see BW, 1/19/04, "The Next Big Thing For Wireless?"). With the chips rolling out in a steady stream, few are betting against Intel this year. Edwards writes for BusinessWeek from San Mateo, Calif.


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