Intel's Q4 earnings strong despite Atom revenue drop

IDG News Service - 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.

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.