Earnings Abound: AMD, IBM, Intel

Chipmakers American Micro Devices, Inc. (AMD) and Intel Corp. both reported disappointing numbers for their fourth quarters. Conversely, IBM Corp. experienced its best performing quarter in nearly a decade.

Focal Points:

• AMD reported relatively flat revenue numbers for its fourth quarter at $1.77 billion, though the company had previously expected to reach $1.79 billion during the period. Net income was at a loss of $1.77 billion, up almost threefold from the prior year's $576 million loss. The company took care to mention that operationally it only lost $9 million for the quarter, pointing largely to the fact that it overpaid for graphics processor ATI Technologies in 2006. Microprocessor sales remain strong, growing nine percent in the quarter, while its graphics unit posted a three percent growth. Although a large chunk of the quarter's loss was due to ATI, graphics processing is seen as a core area of growth over the next several years.
• Intel's revenue reached $10.7 billion up from $9.69 billion the prior year, a 10.5 percent gain. Net income rose 51 percent from $1.50 billion to $2.27 billion; however, reports of its quarterly performance resulted in a 15 percent daily decline in its shares. The company had hoped its revenues would have performed better by achieving net income levels approximately five percent higher than reported. Most believe Intel still has work remaining ahead to improve its expense controls. Much of the company's growth was from its top-line processors, signifying the company still has to improve the positioning and sales of its mainstream chip line.
• IBM reported fourth quarter sales of $28.9 billion, up 10 percent from the $26.3 billion it achieved in the same period last year. The company's net income rose to $3.95 billion from $3.46 in 2006, a 14 percent improvement. Positive performance in Asia, Europe, and developing countries was a primary reason for the company's earnings, as sales in the Americas grew only five percent. IBM's software business experienced a 12 percent surge, and the company also successfully improved its performance in the SMB market.

Experton Group believes trouble still looms in the semiconductor market, as the volume market has softened and global chip inventory levels are up. As the semiconductor market is one of the leading indicators of business health, the AMD and Intel news is at best mixed. On the other hand, IBM's results were strong, especially outside of the U.S. and the company's outlook remains quite positive, even with weakness in the Finance Industry. Experton Group expects Hewlett Packard Co.'s results to compare favorably with IBM's and therefore, Experton Group believes that the global economy will, at worst, have a very mild recession with most countries in positive territory. Executives, except those in troubled companies or industries, should plan on their budgets remaining intact and should not hesitate to pursue their plans as scheduled.