Intel, the world's largest manufacturer of semiconductor chips, said late Tuesday its fourth-quarter revenue fell to $9.6 billion, below the $10.2 billion of a year ago but about $300 million better than the company's guidance.
However, in announcing its results yesterday, the chipmaker also said its gross margins, a key financial stat for the company, fell to 49.6 percent in the quarter, down from 61.8 in the year-ago period.
"Historically, an important motivation for investors to own semiconductor companies, especially those with high-fixed costs, is that during an up cycle, revenue upside would lead to big and exciting levered (earnings-per-share) surprises, causing analysts to materially increase their EPS estimates," said Prudential Equities analyst Mark Lipacis. "We think investors will find Intel's lack of leverage, especially off of cyclical low gross margins, increasingly disappointing, and lead them to ask whether Intel's business model challenges are merely cyclical - or secular in nature."
Lipacis has argued in the past that Intel's problems lean more towards secular, primarily caused by the emergence of Advanced Micro Devices as a more formidable competitor, with competitive products and enough capacity to affect pricing.
The analyst sees the industry transitioning to a "true duopoly" where both companies will own close to 50 percent of the market share - not a favorable scenario for Intel.
"We believe that the process of redeveloping the business processes Intel learned over the past decade, while it was the clear and dominant PC microprocessor force, will continue to be challenging for the company," Lipacis said.
