Intel's Q4 earnings strong despite Atom revenue drop

Atom year-over-year Q4 revenue drops by 57% to $167M (See video below)

Intel reported strong revenue and profit growth in the fourth fiscal quarter of 2011, overcoming a sharp drop in revenue from its low-power Atom microprocessors and chipsets used in tablets and netbooks.

The chip maker reported net income of US$3.5 billion for the quarter that ended on Dec. 31, up 11 percent compared to the previous year's fourth quarter. Intel reported earnings per share of $0.68, while analysts polled by Thomson Reuters estimated earnings per share of 61 cents.

While Intel saw a big drop in revenue from its Atom processors, it still managed to post a net income of $3.5 billion in the fourth quarter.

Using Generally Accepted Accounting Principles (GAAP), Intel recorded net income of $3.4 billion, growing 6 percent year over year.

Intel reported revenue of $13.9 billion, up 22 percent compared to the previous year's fourth quarter.

Though the PC and server segments recorded revenue growth, Atom microprocessor and chipset revenue dropped by 57 percent year over year to $167 million. That's a small portion of the overall revenue and Intel hopes to increase Atom revenue by entering the high-volume smartphone market later this year. The company last week said it had signed deals with Lenovo and Motorola Mobility, which will use the Atom chip code-named Medfield in upcoming smartphones.

Lenovo's K800 will be the first Intel Inside smartphone, and it will be available in China during the second quarter through China Unicom. China is the fastest-growing market for mobile devices and has 950 million smartphone users, Intel CEO Paul Otellini said on a conference call.

"We're not done making announcements in the smartphone space," Otellini said.

Intel's Infineon acquisition earlier this year will help the company grow in the smartphone business, Otellini said. Infineon chips went into 400 million phones, and the company eventually wants to integrate the radios into Atom chips.

Most Atom chips now go into netbooks, but that market has been hurt by tablets. Intel's Medfield chip will also be used in tablets starting this year. Intel also hopes to reinvigorate the PC market with ultrabooks, which are thinner and lighter laptops with low-power components and thinner screens.

Ultrabooks have already shipped from Acer, Asus, Toshiba and Hewlett-Packard with Intel's current Core processors, code-named Sandy Bridge. A new wave of ultrabooks is scheduled to hit the market later this year with upcoming Core processors based on the new Ivy Bridge microarchitecture, which will be manufactured using a new 22-nanometer process. The new chips will bring improved performance and power efficiency to PCs.

Product announcements also due this year include the Xeon E5 chips for servers, code-named Romley, which are expected to be announced in the coming weeks. Servers with E5 will launch later this quarter and into next quarter, Otellini said. Though Romley demand is strong, it won't drive as big a server replacement cycle as the chip architecture code-named Nehalem did in 2009, Otellini said.

"With a tremendous product and technology pipeline for 2012, we're excited about the global growth opportunities presented by ultrabook systems, the data center, security and the introduction of Intel-powered smartphones and tablets," Intel CEO Paul Otellini said in a statement.

Revenue for the PC Client Group, which deals in chips and components for laptops and desktops, was $9 billion in the fourth quarter, up 17 percent year over year. The Data Center Group, responsible for servers and data-center products, posted revenue of $2.7 billion, up 8 percent year over year.

Intel revenue was hit by hard-drive shortages, which resulted in a reduction of orders for microprocessors, said Stacy Smith, Intel's chief financial officer, on the conference call.

In December, Intel reduced revenue expectations for the fourth quarter due to hard-drive shortages, triggered by the floods in Thailand. Smith said the hard-drive shortages did not affect PC sales as computer makers tried to clear out existing inventory. But there was a reduction in orders for new microprocessors, which hurt Intel. The shortage of hard drives will continue to affect the company in the first fiscal quarter, Smith said.

For the first quarter of 2012, Intel is projecting revenue of $12.8 billion, plus or minus $500 million.

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