Intel to issue report after markets close Tuesday 07/13/99 : LUSENET : TimeBomb 2000 (Y2000) : One Thread

Financial Firm Donaldson Luftkin Saying Intel may have some news late today that could affect the markets

Galvin said, "If Intel says Y2k is not an issue, that will clearly be a positive," for the market. Intel shares slipped 13/16 to 65 7/16 Monday.

-- kevin (, July 13, 1999


Nah, just quarterly report, that's all...

The Dog

-- Dog (Desert, July 13, 1999.

Intel Second Quarter Revenue $6.7 Billion Revenue Up 14% and EPS Up 55% from Second Quarter 1998 Intel Investor Relations Web site: Q2 earnings announcement call live on Web site at 2:30 p.m. PDT Conference call replay number (402-220-0146); available through 5:00 p.m. PDT July 16 Replays available shortly after conclusion of conference call

SANTA CLARA, Calif., July 13, 1999 - Intel Corporation announced second quarter revenue of $6.7 billion and earnings of $1.7 billion or $0.51 per share. Second quarter revenue was up 14 percent from second quarter 1998 revenue of $5.9 billion. Second quarter revenue was down 5 percent from first quarter 1999 revenue of $7.1 billion.

Net income in the second quarter was $1.7 billion, up 49 percent from second quarter 1998 net income of $1.2 billion. Net income in the second quarter was down 13 percent from first quarter 1999 net income of $2.0 billion.

Second quarter earnings per share of $0.51 increased 55 percent from $0.33 in the second quarter of 1998. Earnings per share in the second quarter declined 11 percent from $0.57 in the first quarter of 1999.

"We are pleased with our accomplishments this quarter. We made progress positioning Intel for the evolving Internet economy. The Pentium. III processor, a high performance multimedia processor for the most demanding Internet applications, is on track to be our fastest ramping processor ever," said Dr. Craig R. Barrett, president and chief executive officer. "In addition, we regained market segment share in the value PC segment with the Intel. Celeron processor. As expected, second quarter revenue reflected a seasonal slowdown, and we look forward to a strong second half."

During the quarter, the company paid its quarterly cash dividend of $0.03 per share, an increase from $0.02 paid in the first quarter. The dividend was paid on June 1, 1999, to stockholders of record on May 7, 1999. Intel has paid a regular quarterly cash dividend for over six years.

During the quarter, the company repurchased a total of 25 million shares of common stock, at a cost of $1.5 billion, under an ongoing program. Since the program began in 1990, the company has repurchased 634.6 million shares at a total cost of $16.4 billion.

On July 12, 1999, Intel acquired Dialogic Corporation for $44 per share in an all-cash tender offer valued at approximately $780 million.

BUSINESS OUTLOOK The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. Note: These statements do not include the impact of the acquisitions of Dialogic Corporation or Level One Communications or the potential impact of any other mergers or acquisitions that may be completed after June 26, 1999. ** The company expects revenue for the third quarter of 1999 to be up slightly from second quarter revenue of $6.7 billion. The company expects a strong second half.

** Gross margin percentage in the third quarter of 1999 is expected to be up slightly from 59 percent in the second quarter. Intel's gross margin expectation for the full year 1999 is now 60 percent, plus or minus a few points, up from prior guidance of 57 percent, plus or minus a few points. This change in guidance reflects the positive impact of the company's ongoing focus on cost improvements and manufacturing efficiencies. In the short term, Intel's gross margin percentage varies primarily with revenue levels and product mix as well as changes in unit costs.

** Expenses (R&D plus MG&A) in the third quarter of 1999 are expected to be approximately 4 to 6 percent higher than second quarter expenses of $1.7 billion, primarily due to higher spending on R&D projects. Expenses are dependent in part on the level of revenue.

** R&D spending is expected to be approximately $3.0 billion for the full year 1999.

** The company expects interest and other income for the third quarter of 1999 to be approximately $275 million, depending on interest rates, cash balances, the company's ability to realize expected gains, and assuming no unanticipated items.

** The tax rate for 1999 is expected to be 33.0 percent.

** Capital spending for 1999 is expected to be approximately $3.0 billion.

** Depreciation and amortization is expected to be approximately $3.3 billion for 1999. Depreciation and amortization for the third quarter of 1999 is expected to be approximately $810 million.

The above statements contained in this outlook are forward-looking statements that involve a number of risks and uncertainties. In addition to factors discussed above, among other factors that could cause actual results to differ materially are the following: business and economic conditions such as the recent global financial difficulties, and growth in the computing industry in various geographic regions; changes in customer order patterns, including changes in customer and channel inventory levels and changes due to year 2000 issues; changes in the mixes of microprocessor types and speeds, purchased components and other products; competitive factors, such as rival chip architectures and manufacturing technologies, competing software-compatible microprocessors and acceptance of new products in specific market segments; pricing pressures; development and timing of introduction of compelling software applications; insufficient, excess or obsolete inventory and variations in inventory valuation; continued success in technological advances, including development and implementation of new processes and strategic products for specific market segments; execution of the manufacturing ramp, including the transitions to the Pentium III processor and to the 0.18 micron process technology; excess or shortage of manufacturing capacity; the ability to grow new businesses and successfully integrate and operate any acquired businesses; unanticipated costs or other adverse effects associated with processors and other products containing errata (deviations from published specifications); impact on the company's business due to internal systems or systems of suppliers, infrastructure providers and other third parties adversely affected by year 2000 problems; claims due to year 2000 issues allegedly related to the company's products or year 2000 remediation efforts; litigation involving antitrust, intellectual property, consumer and other issues; and other risk factors listed from time to time in the company's SEC reports, including but not limited to the report on Form 10-Q for the quarter ended March 27, 1999 (Part I, Item 2, Outlook section).

SECOND QUARTER 1999 BUSINESS REVIEW Intel Architecture Business Group ** Microprocessor unit shipments were slightly down sequentially in the second quarter. ** Motherboard unit shipments were down sequentially in the second quarter.

** Chipset unit shipments were essentially flat sequentially in the second quarter.

Computing Enhancement Group ** Embedded processor and microcontroller unit shipments were up sequentially in the second quarter. ** Flash memory unit shipments were up sequentially in the second quarter.

Network Communications Group ** Unit shipments of Fast Ethernet connections and switches were up sequentially in the second quarter. Financial Review ** Average selling prices of microprocessors were down in the second quarter, as the company regained market segment share in the value PC segment. ** Gross margin percentage remained flat in the second quarter, as ongoing cost improvements and manufacturing efficiencies resulted in lower unit costs offsetting the impact of a decline of microprocessor ASPs.

** Expenses during the quarter were up 6 percent from the first quarter, at the low end of the guidance that spending was expected to be approximately 6 to 10 percent higher than first quarter expenses.

** The effective tax rate for the second quarter was 33.0 percent.

SECOND QUARTER 1999 HIGHLIGHTS Intel Architecture Business Group ** On May 17, Intel introduced the Pentium III processor at 550 MHz, enabling faster PCs for home and business applications, including demanding Internet sites and technologies. Later in the quarter, the company launched a new theme under the Intel WebOutfitterSM Service, providing Pentium III processor owners with access to music-related benefits including live online concerts, Internet radio and artists' merchandise. ** During the quarter, Intel introduced the Intel Celeron processor at 466 MHz, the company's highest-performing processor for value PCs. Also introduced was the Intel 810 chipset that integrates 3-D graphics and enables software-based audio, modem and DVD playback capability.

** On June 14, Intel introduced the mobile Pentium II processor at 400 MHz, the company's first product manufactured on 0.18 micron process technology. The company also introduced the mobile Intel Celeron processor at 400 MHz. Earlier in the quarter, the company introduced the mobile Intel Celeron processor at 366 MHz along with the mobile 440MX and 440ZX chipsets, which help bring increased performance and capabilities to value notebook PCs.

** During the quarter, Intel and Hewlett-Packard publicly disclosed the IA-64 instruction set architecture, enabling software developers from around the world to accelerate the development of server and workstation applications for forthcoming IA-64 processors, beginning with the Merced processor in 2000.

** During the quarter, the company introduced the Intel 752 graphics accelerator chip for mainstream PCs based on the Pentium III processor.

** During the quarter, Intel and Hughes Network Systems (HNS) announced that they are collaborating on a range of digital satellite set-top products based on Intel architecture processors. The first resulting product is expected to be a dual-purpose set-top box that can receive AOL TV* service along with more than 200 channels of digital TV through the DIRECTV* service.

Computing Enhancement Group ** During the quarter, Intel disclosed details of its next generation StrongARM. processor technology for advanced handheld computing products, Internet access devices requiring low-power and high- performance, and enhanced Internet backbone products. The next generation StrongARM processor is expected to deliver 600 MHz of performance while using only half a watt of power for long battery life. ** During the quarter, the company introduced Intel Persistent Storage Manager software for the Windows* CE operating system, which allows customers to replace a variety of non-volatile memories with a single Intel StrataFlash memory chip. The single-chip solution stores executable code, files, and registry back up functions to replace battery backed DRAM, mask ROM and storage cards in many embedded applications.

Network Communications Group ** On April 6, Intel introduced the AnyPoint Home Network product line, which helps make it easy for families with more than one PC to share Internet access, printers, files, and games. The AnyPoint Home Network uses existing phone lines to connect home PCs without the need for additional wiring. ** During the quarter, the company introduced Intel LANDesk. Client Manager 6, a software product that resides on PCs to provide system administrators with access to PC health, system assets, troubleshooting, problem resolution and desktop management information from any console connected to the Internet or corporate Intranet. The company also introduced Intel LANDesk Management Suite 6.3 which provides network administrators with Web-based reporting of client system information.

** During the quarter, Intel announced plans to enter the network processor market segment. The company plans to offer components designed to help data and telecommunications equipment vendors to enable new features and services in switches, routers, and access concentrators.

New Business Group ** During the quarter, Intel publicly disclosed that it has formed a new Internet Data Services division which is building a global network of data centers comprised of thousands of servers designed to host Web content and services such as e-commerce. Earlier in the quarter, Intel announced a multi-year agreement with Excite Inc. to develop a new e-commerce service designed to make it easy for consumers to locate and purchase a broad variety of products and services online. This new service will employ e-commerce technology from Intel's iCAT division and will be hosted in Internet Data Services facilities. Corporate Strategic Investments ** On July 12, Intel acquired Dialogic Corporation for $44 per share in an all-cash tender offer valued at approximately $780 million. This acquisition is aimed at expanding Intel's standard-high-volume (SHV) server business in the multibillion-dollar networking and telecommunications market segment by providing industry vendors with standards-based hardware and software building blocks for integrated voice and data networks. ** During the quarter, Intel announced the formation of the Intel 64 Fund, LLC, an equity investment fund of approximately $250 million available for investing in technology companies developing innovative Internet and enterprise applications. The fund, which includes investments from a group of leading technology companies as well as large corporate users, will target solutions for Intel's IA-64 architecture, beginning with the processor code-named Merced. Later in the quarter, Intel 64 Fund announced initial investments in emerging technology companies.

** As of the end of the quarter, Intel's strategic investment portfolio included approximately 275 companies worldwide, with a total value of approximately $3.5 billion. The portfolio includes securities of both publicly-traded and private issuers and the quarter-end valuation primarily reflects reported market prices for publicly-traded securities and cost basis for other issues. Portfolio value will vary depending on e.g. market fluctuations, acquisitions, and dispositions.

Technology and Manufacturing Review ** During the quarter, Intel announced it was activating its 300 millimeter (mm) wafer development program. The use of 300 mm wafers is expected to cut high-volume chip fabrication cost by 30 percent when compared to 200 mm wafer production costs. Intel plans to start 300 mm production on the 0.13 micron process with copper metallization in 2002, about one year after it begins production on the 0.13 micron process with copper metallization on 200 mm wafers. The 300 mm process technology development will be carried out at Intel's D1C development fab in Oregon, where equipment installation is scheduled to begin in early 2000. ** The company plans to manufacture and ship new members of the Pentium III processor family manufactured on the 0.18 micron process technology in the second half of 1999. Intel is shipping the mobile Pentium II processor at 400MHz, the company's first product manufactured on the 0.18 micron process technology.

FINANCIAL INFORMATION The financial review section is in the tables following this release. Along with the income statement and balance sheet information, this additional information is also available from the investor Web site at in a spreadsheet format that can be downloaded. Copies of this earnings release and Intel's annual report can be obtained via the Internet at or by calling Intel's transfer agent, Harris Trust and Savings Bank, at (800) 298-0146.

Intel, the world's largest chip maker, is also a leading manufacturer of computer, networking and communications products. Additional information about Intel is available at

***ARM and StrongARM are trademarks of Advanced RISC Machines, Ltd.

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INCOME Three Months Ended Six Months Ended

June 26, 1999 June 27, 1998 June 26, 1999 June 27, 1998 NET REVENUE $ 6,746 $ 5,927 $ 13,849 $ 11,928 Cost of sales 2,771 3,027 5,683 5,776 Research and development 731 623 1,394 1,218 Marketing, general and administrative 924 671 1,815 1,382 Purchased in-process research and development - - 165 Operating costs and expenses 4,426 4,321 8,892 8,541 OPERATING INCOME 2,320 1,606 4,957 3,387 Interest and other 290 144 637 344 INCOME BEFORE TAXES 2,610 1,750 5,594 3,731 Income taxes 861 578 1,846 1,286 NET INCOME $ 1,749 $ 1,172 $ 3,748 $ 2,445 BASIC EARNINGS PER SHARE $ 0.53 $ 0.35 $ 1.13 $ 0.73 DILUTED EARNINGS PER SHARE $ 0.51 $ 0.33 $ 1.08 $ 0.69 COMMON SHARES OUTSTANDING 3,310 3,382 3,317 3,332 COMMON SHARES ASSUMING DILUTION 3,446 3,537 3,462 3,543

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BALANCE SHEET At June 26, 1999 At March 27, 1999 At Dec. 26, 1998 CURRENT ASSETS Cash and short-term investments $ 10,609 $ 10,589 $ 7,626 Accounts receivable 3,265 3,319 3,527 Inventories: Raw materials 222 232 206 Work in process 947 797 795 Finished goods 594 679 581 1,763 1,708 1,582 Deferred tax assets and other 836 833 740 Total current assets 16,473 16,449 13,475 Property, plant and equipment, net 11,412 11,492 11,609 Long-term investments 3,453 3,867 5,365 Other assets 1,463 1,285 1,022 TOTAL ASSETS $ 32,801 $ 33,093 $ 31,471 CURRENT LIABILITIES Short-term debt $ 135 $ 182 $ 159 Accounts payable and accrued liabilities 3,840 3,921 4,081 Deferred income on shipments to distributors 499 690 606 Income taxes payable 643 1,423 958 Total current liabilities 5,117 6,216 5,804 LONG-TERM DEBT 666 699 702 DEFERRED TAX LIABILITIES 1,546 1,452 1,387 PUT WARRANTS - - 201 STOCKHOLDERS' EQUITY Common Stock and capital in excess of par value 4,819 5,025 4,822 Retained earnings 20,653 19,701 18,555 Total stockholders' equity 25,472 24,726 23,377 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 32,801 $ 33,093 $ 31,471

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INTEL CORPORATION SUPPLEMENTAL FINANCIAL AND OTHER INFORMATION (In millions) Q2 '99 Q1 '99 Q2 '98 GEOGRAPHIC REVENUES: Americas 45% 42% 44% Europe 25% 28% 28% Asia-Pacific 22% 22% 20% Japan 8% 8% 8% SELECTED CASH FLOW INFORMATION: Depreciation $791 $792 $674 Capital spending ($ 766) ($ 675) ($1,077) Put warrant proceeds, net $0 $0 $27 Stock repurchase program ($1,501) ($1,297) ($1,739) Proceeds of sales of shares to employees, tax benefit & other $220 $345 $153 Dividends paid ($100) ($67) ($51) Net cash used for acquisitions (Digital Q2 '98, Shiva Q1 '99) $0 ($132) ($625) SHARE INFORMATION (adjusted for stock splits): Average common shares outstanding 3,310 3,324 3,382 Dilutive effect of: Stock options 136 154 155 Common shares assuming dilution 3,446 3,478 3,537 STOCK BUYBACK: BUYBACK ACTIVITY: Shares repurchased 25.0 21.0 44.3 Cumulative shares repurchased 634.6 609.6 515.4 PUT WARRANT ACTIVITY: Put warrant sales - - 10.0 Put warrant expirations - (5.0) (2.0) Put warrant exercises - - (20.6) Put warrants outstanding - - 17.0 BUYBACK SUMMARY: Shares authorized for buyback 760.0 760.0 760.0 Increase in authorization - - - Cumulative shares repurchased (634.6) (609.6) (515.4) Put warrants outstanding - - (17.0) Shares available for buyback 125.4 150.4 227.6 OTHER INFORMATION: Employees (in thousands) 65.3 64.8 66.7 Days sales outstanding 41 38 44

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Intel Architecture Business Group: Revenues 5,559 6,429 11,988 5,240 10,655 Operating profit 2,305 2,944 5,249 1,649 3,509

All other: Revenues 1,187 674 1,861 687 1,273 Operating (loss) 15 (307) (292) (43) (122)

Total: Revenues 6,746 7,103 13,849 5,927 11,928 Operating profit 2,320 2,637 4,957 1,606 3,387

In the first quarter of 1999, Intel had two reportable segments: the Intel Architecture Business Group and the Computing Enhancement Group. During the second quarter, Intel changed the structure of its internal organization, moving the chipset operation and the graphics chips operation to the Intel Architecture Business Group from the Computing Enhancement Group. This change was made to better align the product planning and marketing strategies of the company's component operations. As a result, the second quarter information has been presented with the Intel Architecture Business Group as the only remaining reportable segment. Information for prior periods has been restated.

The Intel Architecture Business Group now includes microprocessors, motherboards, other board-level products, chipsets, and graphics chips.

The "all other" category includes revenues and earnings (losses) from non-reportable operating segments: the remaining embedded processor and flash memory operations of the Computing Enhancement Group, the Network Communications Group and the New Business Group. In addition, "all other" includes certain corporate-level operating expenses (primarily the amount by which profit-dependent bonus expenses differ from a targeted level recorded by the segments) and reserves for deferred income on shipments to distributors not allocated to operating segments. For the second quarter of 1999, approximately $400 million of the change in revenue in the "all other" category is due to the impact of the reserve for deferred income on shipments to distributors and other corporate reserves.

-- Dog (Desert, July 13, 1999.

Did anyone listen to Intel gripping that it couldn't find out the Y2K status of its Japanese sources? NOOOOOOO. That was all over the place, yet did it affect the price of the stock? Not one whit. Actually the stock went higher after all that fuss.

I sold out at 62 plus, but after reading the complaint about the uncertainty of Japanese manufacture in Y2K, I was thrilled to take the money and run.

-- Mara Wayne (, July 13, 1999.

As a comic side note, "PNG" (Peter Gauthier) told me in an email a month or so ago that a main reason that Intel had so much trouble getting Y2K info from Japanese vendors, etc., was that Intel honchos basically tried to order/bully Japanese companies into revealing such matters. This was a cultural faux pas, to say the least. (N.B. I'm not saying that Japan is actually well prepared on Y2K. I don't know and have given up trying to know, though I have some uneasy doubts. There have been too many contradictory reports, even from "official" Japanese govt. agencies, etc. Japanese society seems so insular anyway.)

Let's also put this in context. If you watched the superlative PBS "Frontline" documentary "The Crash" a few weeks ago, you'll remember that Greenspan and Rubin blundered (sorry, that's the fact of the matter) at the 1995 G8 conference by getting the Japanese to adopt, much against their wishes and better judgment, a policy whereby the Japanese yen would be systematically devalued against the U.S. dollar. The program didn't go into explanations here, but let me make a few. Yes, such a currency policy would hurt somewhat our exports to Japan and help their exports to us--Japanese exports would suddenly be cheaper in U.S. dollars, and American exports would be more expensive in Japanese yen. But the stronger dollar would also make our financial markets, including our stock and bond markets, even more attractive to Japanese and other foreign investors--and a booming stock market has always been the apple of this Administration's eye, upon which practically everything else depends.

So what happened? The weaker Japanese currency suddenly made other regional Asian currencies stronger vis-a-vis the yen, which in turn made those other Asian countries' exports more expensive vis-a-vis Japanese exports--and in SE Asia, govt. budgets and national economies generally depend upon the philosophy "export or perish." So this put tremendous downward pressure on those Asian currencies and economies; then the big currency speculators, including the Soros hedge fund, moved in for the kill, especially betting against the Thai baht, which was finally devalued officially on July 2, 1997, thereby triggering a disastrous "beggar thy neighbor" wave of regional currency devaluations as other countries devalued their currencies in a futile (and ultimately rather suicidal) attempt to compete with one another. Down went the Indonesian rupiah, the Malaysian ringgit, the South Korean won, etc. And down went the Asian stock markets. Financial catastrophe, which then spread to Russia and Eastern Europe, and then to Brazil and much of Latin America. The final tally: hundreds of millions of lives ruined (80 million thrown into destitution in Indonesia alone), thanks largely to Western greed and miscalculation. The IMF, which is in our pocket, protected us and our cohorts in financial crime--the Brits, the Dutch, the French, and the Germans--out of highly speculative investments in all those overseas markets, after we had deliberately pushed foreign investment bubbles to the breaking point in the search for even bigger profits for ourselves; the IMF then "bailed out" countries like Thailand, S. Korea, Indonesia, Brazil, etc., by imposing "austerity programs" (hey, suffering builds character) that primarily targeted the middle and lower classes--folks who had had nothing to do with all this wheeling dealing in the first place.

But back specifically to Japan. As the Asian financial crisis unfolded (precipitated in large part, remember, by the 1995 blunder by Greenspan and Rubin), Asian companies defaulted on their loans to Japanese banks, which are the region's (and the world's) biggest creditors. In S. Korea alone, during the worst of the crisis in the summer of 1998, forty Korean firms went bankrupt each and every day. Eventually, Japanese banks found themselves saddled with $2 trillion U.S. (roughly 240 trillion yen) in bad loans--a tremendous hole that the Japanese are still struggling to climb out of.

Considering that the good ole U.S. of A. helped to start this mess, the Japanese must have loved it when then-Deputy Treasury Sec. Larry Summers (the fellow who took over Rubin's job two weeks ago) went to Japan in the summer of 1998 and told the Japanese they should get their house in order. Little wonder that the Japanese called it the most arrogant visit by an American official since the days of MacArthur.

Bottom line: the Japanese might like us a little more than the Russians do (our financial speculators really outdid themselves in Russia, by the way), but that's not saying much. So when some Intel exec in a $2000 suit goes over to Japan and throws his weight around trying to get info about vendor Y2K compliance, don't expect many answers (good, bad, or indifferent) to be forthcoming.

-- Don Florence (, July 13, 1999.

There has always been a commincations disconnect with Japanese suppliers. They only tell what they want you to know, no more. And asking questions just makes them clam up more. I have extensive experience talking with and interacting with Japanese suppliers, and I have to say they are tighter lipped than the US corporations regarding Y2K disclosure, by a factor of 10...

relieving myself on the bush,

The Dog

-- Dog (Desert, July 15, 1999.

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