Financial Update: Intel, IBM Beat Estimates. SUN Invests In Tripwire. 3D Labs Posts 4thQtr Results.

January 19, 2001

SHORT TAKES

INTEL JUST BEATS ESTIMATES

San francisco, CA — Intel Corp.’s fourth-quarter results just beat already lowered expectations as the world’s largest chipmaker suffered from flagging personal computer sales and forecast its first quarter sales would fall about 15 percent from the fourth quarter level.

Intel, which warned on Dec. 7 that fourth-quarter sales would not meet expectations, reported earnings excluding acquisition-related costs of $2.63 billion, or 38 cents a share, vs. $2.39 billion, or 34 cents a share. On that basis, the results beat the consensus analyst forecast of 37 cents a share, as compiled by First Call/Thomson Financial.

The company said its fourth quarter sales rose 6 percent to $8.70 billion from $8.21 billion a year ago.

Intel said its best estimate was that revenue for the first quarter of 2001 would be down 15 percent, plus or minus several points, from the fourth quarter, due to seasonal factors and the impact of slowing worldwide economies. Historically, Intel’s revenues have fallen about 5 percent in first quarter from the fourth quarter.

The company said that it expected its gross margin percentage in the first quarter of 2001 to be about 58 percent, plus or minus a couple of points, down from 63 percent in the fourth quarter, mostly due to lower revenue.

The Santa Clara, Calif.-based technology bellwether also said it expected to spend about $4.3 billion in 2001 on research and development, up from $3.9 billion in 2000. It said it expected to spend about $7.5 billion on capital expenditures, up from the $6.7 billion it spent in 2000.

Bryant said Intel’s large cash reserves and strong financial position allowed it to continue to invest even when the economy slows.

“These are advantages of being Intel … and when the economy does start growing again, we can meet our customers’ demands,” he said. He added that the company plans to ramp up aggressively the production of its latest microprocessor, the Pentium 4, in the first quarter.

The increased capital spending is warranted, Intel said, in order to position itself better for the transition to making chips with smaller and smaller line widths and using larger silicon wafers, from which semiconductors are made. These transitions boost productivity and cut costs because more chips can be gotten out of each wafer.

Including acquisition-related costs, Intel said its net income for the fourth quarter rose 4 percent to $2.19 billion from $2.11 billion a year earlier. Net earnings per share rose 7 percent to 32 cents on a diluted basis from 30 cents a year earlier.

Intel is among the first of the big high-tech companies to report quarterly earnings and, as such, is being closely watched to help gauge where high-tech spending is headed given in light of the slowing economy.

Intel shares slipped 3/4 to $31-3/8 in regular trading on the Nasdaq, before the results were released. In after-hours activity, Intel stock rose to $31-5/8 on Instinet. The shares have tumbled more than 50 percent since hitting a record of $75.81 Aug. 28, 2000., underperforming the Standard & Poor’s 500.

IBM BEATS ESTIMATES DESPITE TECH SLUMP

Joe Wilcox reported for CNET News.com: IBM slipped past analysts’ expectations for fourth-quarter earnings by 2 cents a share.Big Blue earned $2.7 billion, or $1.48 a share, compared with $2.1 billion, or $1.12 a share, a year earlier. Analysts polled by FirstCall expected earnings per share of $1.46.

Year over year, revenue grew 6 percent, or $25.6 billion, during the fourth quarter, ended December 31. Many Wall Street analysts had projected at least $25 billion in sales. A year earlier, IBM posted revenue of $24.2 billion.

For the year, IBM revenue topped $88.4 billion, compared with $87.5 billion a year earlier. Income reached $8.1 billion, or $4.44 a share. Analysts had projected $4.43 earnings per share for 2000. A year earlier, Big Blue’s income reached $7.7 billion, or $4.12 a share.

“We had a very solid fourth quarter, which in many respects, reflects momentum that was building steadily all year,” IBM CEO Lou Gerstner said in a statement. “On one level, this momentum is due to strong execution, and we have increased our market share in many of our most strategic product areas.”

In regular trading, IBM shares closed at $96.69, up $3.94. The stock climbed to more than $103 in after-hours trading. In the past year, the shares have traded as high as $134.94 and as low as $80.06.

Analysts had been carefully watching IBM, one of the few major high-tech companies to not issue a fourth-quarter profit warning. Ongoing sales problems coupled with slowing corporate and consumer technology spending hurt Big Blue, but not as severely as some competitors. Because of its size and array of business operations, “IBM is in a better position to spread out the impact of larger problems” affecting the entire computing sector, said Technology Business Research analyst Bob Sutherland.

IBM posted overall hardware revenue of $11.4 billion, up 10 percent year over year. The PC division, as expected, reached its second straight quarter of profitability.

Services revenue grew by 5 percent year over year to $9.2 billion, up from 4 percent during the third quarter and from 2 percent a year earlier. Software again took a beating, with revenue declining 1 percent to $3.6 billion. That compares with a 3 percent decline for the third quarter and a 2 percent increase a year earlier.

Revenue from the Americas was $10.8 billion, an increase of 3 percent year over year. Europe, Middle East and Africa declined 3 percent to $7.4 billion. Asia-Pacific grew 13 percent to $5 billion.

Revenue from manufacturers increased 13 percent year over year to $2.4 billion, while global financing revenue rose 6 percent to $1 billion.

Sales of custom hardware and software products to specialized customers declined 11 percent year over year to $425.

Gross profit margins rose to 37.7 percent from 36.7 percent a year earlier.

SUN INVESTS $5M IN TRIPWIRE

Stephen Shankland reported for CNET News: Sun Microsystems has put in $5 million of a $24 million investment in Tripwire, a further display of the company’s support for the open-source software model.

Tripwire, based in Portland, Ore., makes software that detects when important files have been changed, whether accidentally, deliberately or through the actions of an intruder. The company released its software as open source last year, meaning that anyone may download, use and modify it without charge.

Tripwire hopes to make money by selling its software for use on all manner of devices, from servers to Palms, the company has said.

The new funding round was announced Tuesday. New investors besides Sun were Deutsche Banc Alex Brown, ClearLight Partners and Riverside Management. Earlier investors Bessemer Venture Partners, Advanced Technology Ventures and Garage.com also contributed to the funding round, Tripwire said.

3DLABS FOURTH QUARTER RESULTS TO EXCEED EXPECTATIONS

Hamilton, Bermuda — 3DlabsÆ, Inc. Ltd. (NASDAQ:TDDD) announced today that it expects its fourth quarter results to exceed analyst expectations. The company anticipates fourth quarter revenues of between $23.5 million to $24.5 million, which represent at least a 65% increase compared to the $14.2 million reported in the fourth quarter of 1999, and at least a 36% increase sequentially compared to the $17.2 million reported in third quarter of 2000.

As a result of this substantial increase in revenues, the company also expects to report a much reduced operating loss for the fourth quarter. The growth in revenues was driven by increased sales of its Wildcat(tm) product line and continued strength of the OxygenÆ line of products in the channel.

The company’s complete financial results will be reported on Wednesday, February 28, 2001. The company has scheduled a conference call from 2:00 p.m.-3:00 p.m., Pacific Daylight Time Time, on February 28th. You may access the call in the United States by dialing 888-813-7826 or via the Internet at http://www.3dlabs.com/ . A replay of the call will be available for 48 hours, one hour after the live call ends, and at the 3Dlabs web site.

ADAPTEC SEES REVENUE RISING 5 TO 10 PERCENT

New York, NY — Adaptec Inc. (ADPT.O), a computer storage products maker, expects fourth-quarter revenues to grow 5 to 10 percent from $186.26 million in the third quarter, Chief Financial Officer Dave Young told analysts during a conference call on Thursday. According to First Call/Thomson Financial, analysts expected revenues of about $198 million for the fourth quarter. “We are forecasting a continued softness in the business and slowing technology investments by both business and consumers,” Young said.

Young said 2002 revenue growth was likely to be 5 percent. The Wall Street revenue outlook for the next fiscal year is $873.75 million. The Milpitas, Calif.-based firm expects gross margins to continue to be “under pressure,” but sees “no change” from levels reported in the third quarter.

Earlier Thursday, Adaptec reported third-quarter earnings of $25.5 million, or 26 cents per diluted share, compared with $57.6 million, or 52 cents, a year ago. Wall Street expected 26 cents.

Shares of Adaptec rose 3/8 to $13-1/2 Thursday on Nasdaq, off a 52-week low of $8, but below a 52-week high of $62-2/16.

CISCO DROPS CASH ON NETWORKING CHIP START-UP

Sam Ames reported for cnet news.com — Networking chip start-up SandCraft announced the completion of a third round of financing Tuesday, which included a large chunk of funding from giant Cisco Systems. The maker of chips for Internet and network equipment said it raised $35.5 million in its series C financing round led by San Bruno, Calif.-based Vantage Point Venture Partners and New York-based Wasserstein Ventures. Networking equipment maker Cisco made the largest contribution.

SandCraft started out as a company that licensed its chip technology to semiconductor makers such as NEC and LSI Logic to produce chips for consumer products like digital TV set-top boxes and laser printers. The Santa Clara, Calif.-based company plans to use the new funding in its transition to a so-called fabless semiconductor company that makes chips for Internet and network infrastructure equipment, but does not own the factories that produce them.

Michael Barar, SandCraft’s vice president of sales and marketing, said the company wants to shift away from making chips for consumer products because economic realities have squeezed the average selling price of such goods, which also lowers gross margins. The Internet equipment market is less price sensitive according to Barar, and companies that buy the chips–such as Cisco–depend more on the quality of the technology. “Performance is more important than the price of the silicon,” he said. The sales volume is lower in the network equipment sector, but the price of the end product, like a $5,000 router, is much higher than a consumer product.

NEC UNITS REALIGN TO PRESENT UNIFIED FRONT

Melanie Austria Farmer reported: NEC Technologies on Friday announced plans for a corporate realignment in North America with NEC Computers, its fellow subsidiary of giant Japanese manufacturer NEC.

Under the new organizational structure, NEC Computers, which will continue to provide mobile devices and other computing products, will become a subsidiary of Sacramento, Calif.-based NEC Technologies, a maker of imaging products.

The challenge for NEC Computers has been in taking on Dell Computer, IBM, Hewlett-Packard, Compaq Computer and others that quickly churn out nearly identical desktop machines and already have a strong presence in the corporate market. NEC Computers’ strongest presence is in the portables market, from which it derives more than 50 percent of its revenue.

Though it becomes a division of NEC Technologies, NEC Computers will continue to play in its target markets by offering existing product lines including the NEC Versa notebook and PowerMate desktop computers, the MobilePro handheld PC and Express5800 servers.

Both companies said over the next few years they intend to develop and combine operating designs so they can jointly face the market equipped with a complete suite of computing products.

TRUESAN NETWORKS SECURES $30M IN SECOND ROUND FUNDING

San Jose, CA — TrueSAN Networks, Inc., today announced the completion of a $30M second round of funding. Woodside Fund led the financing round, with additional investments from Merrill Lynch, QLogic Corporation, JT Venture Partners, Credit Suisse First Boston, Spring Creek Partners, and Finisar Corporation. TrueSAN will use the funding to expand its sales, marketing, and recruiting efforts as well as accelerate engineering initiatives inteded to enable the company to take a dominant position in open storage infrastructure solutions.

About TrueSAN Networks

TrueSAN Networks, Inc., headquartered in San Jose, California, delivers enterprise storage networking systems, software, and services for building scalable, intelligent, and universally accessible storage infrastructures. Using unique storage architecture and software technology, TrueSAN solutions overcome the limitations of existing storage systems and deliver scalability, versatility, and ease of use with unbeatable price/performance. TrueSAN solutions provide Internet businesses, service providers, multimedia firms, and growing enterprises with an innovative way to better leverage invaluable information assets.

About Woodside Fund

Founded in 1983, Woodside Fund has one of the longest and strongest track records of success in early stage venture capital investing. All Woodside Funds have performed in the upper quartile of the industry for venture capital partnerships formed in their respective years. Woodside Fund’s latest partnership, Woodside Fund IV, which had its final close in April 2000, invests between $5 and $10 million in early stage ventures in Internet Protocol infrastructure and e-Commerce infrastructure, located in Northern California and the West Coast. The Fund serves as the lead or co-lead investor in most of its portfolio companies.

UNISYS EARNINGS FALL, MATCH EXPECTATIONS

Blue Bell, PA — Computer services supplier Unisys Corp. (UIS.N) on Thursday reported lower fourth-quarter profits and said its revenue growth for 2001 would be at the low end of expectations. Unisys said that for the three months ended Dec. 31 it earned $128.6 million, or 41 cents per share, excluding one-time charges, vs. $144.4 million, or 46 cents, a year ago.

The results matched the consensus analyst forecast of 41 cents per share, according to market research firm First Call/Thomson Financial.

In December, Unisys said it would seek strategic alternatives for its federal computer services unit and cut 5 per cent of its work force in an effort to spur growth.

Shares of Unisys closed on Wednesday at $16-11/16 on the New York Stock Exchange. In the past 52-weeks, the stock has traded as low as $9-3/16 and as high as $36-1/16.

VA LINUX SEES Q2 OPER LOSS 24C-28C SHR

Fremont, CA — VA Linux Systems today announced that it expects revenue for the second fiscal quarter, ended January 27, 2001, to be $43 million to $50 million, an increase of 115% to 150% from the second quarter of fiscal 2000. It expects the loss for the quarter, excluding non-cash charges, to be in the range of $0.28 to $0.24 per share.

“We are in the midst of an overall economic slowdown which is affecting all of our sources of revenue, ranging from Linux servers to web advertising banner sales,” said President and CEO Larry Augustin. “The fiscal second quarter has traditionally been slow for us because of fewer selling days around the holiday season. However, thus far in January we have not seen the acceleration of business we normally see after the holidays. We believe the major contributing factor is the overall economic slowdown. Given the slowdown, we now expect revenue in fiscal 2001 to increase 60% over revenue for the previous year. this is a Reduction from the guidance given previously of 125% year-over-year growth.”

“Additionally, the current economic conditions are creating a difficult pricing environment resulting in lower gross margins. Going forward in this economic environment, we intend to focus on higher margin business and to manage expense levels such that we can achieve profitability given our revised revenue expectations.”

Web site: http:// www.valinux.com

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