During the fourth quarter, Intel's net income doubled to beat expectations as sales of its high-end PC and server chips drove sales. However, the world's largest chipmaker remained cautious about the traditionally slower first quarter and said it planned to spend far less in capital expenditures this year than last.

"This year will be driven by the pace of the recovery in the industry and the economy," said Chief Financial Officer Andy Bryant. "While we are planning for a seasonal performance, we have the flexibility to respond to any environment."

Intel (INTC) shares fell 1.4 percent to $17.55 on Wednesday afternoon. The chip giant reported its results after the bell on Tuesday.

Hans Mosesmann of Prudential Securities wrote this morning that the stock is as high as it's going to get for the near term considering a likely slowdown in business out of Asia Pacific due to an early Chinese New Year.

"We do expect a recovery in corporate spending later in 2003 however it likely will be too modest in terms of intensity and timing to make the bet on Intel at this time," he said.

John Lau, analyst with RBC Capital Markets, acknowledged Intel presented a conservative outlook for 2003, but that the company could surpass its targets if the economy improves.

Also, equipment stocks fell after Intel set its capital expenditure budget between $3.5 billion and $3.9 billion this year, which was less than the expected amount of $4 billion. Intel spent $4.7 billion during 2002 on capital projects.

Lau said this budget was flexible, though, and could be adjusted on a quarterly basis. During 2002, Intel reduced its budget twice. "The lower cap-ex budget is an indication that they have plenty of capacity for the near term. This is a prudent step until the economic and business climate improves."

Fourth quarter

For the quarter ended December, Intel earned $1 billion, or 16 cents a share, on revenue of $7.16 billion compared with $504 million, or 7 cents a share, on sales of $6.98 billion during the same quarter last year.

Analysts surveyed by Thomson First Call expected earnings of 14 cents a share on sales of $6.9 billion, on average.

Intel's gross margin was 51.6 percent compared with 49 percent during the previous quarter and the company logged expenses worth $2.1 billion.

Cash and short-term investments increased to $10.79 billion compared with $9.6 billion during the previous quarter. Intel continued its repurchase of company stock by buying back 59 million shares.

Intel's headcount declined 3.6 percent to 78,700 from 81,700 during the previous quarter. Executives said they do not anticipate adding many employees during 2003.

Profits and revenue in Intel's architecture business, which accounts for the company's dominant computer processors, chip sets and motherboards, jumped to $1.99 billion and $5.93 billion, respectively, during the fourth quarter from $1.4 billion and $5.4 billion during the third quarter.

Microprocessor unit shipments set a record for the company during the latest three months. Sales of Intel's high-end PC and server chips contributed the most to Intel topping its targets.

Intel grew sales in both its wireless communications and communications group units, but the two segments remained unprofitable. The wireless communications group, which represents flash memory products, lost $98 million in the quarter, almost triple the loss from the previous quarter. CFO Bryant said that should be a one-time event in the unit, due mainly to inventory reserves on a couple of older products.

RBC's Lau said rapid technology shifts in the flash memory market make obsolescence a normal occurrence. Overall, he said Intel continues to roll out strong products through all of its different categories, especially microprocessors.

First quarter

For the first quarter, Intel expects revenue of $6.5 billion to $7 billion. As usual, the company provided no earnings target but it does expect gross margin of 50 percent and expenses of $2 billion to $2.1 billion. Analysts had been forecasting revenue of $6.6 billion and earnings of 13 cents a share, on average.

The first quarter is typically a slower period and executives said not to expect sales to breakout of a traditional seasonal track.

"There are some points of light out there, but nothing that indicates a clear pattern," said President Paul Otellini.

Jonathan Joseph, analyst with Salomon Smith Barney, kept his financial targets steady through 2003 and said demand for computers must pick up in order for Intel to markedly improve its financials.

"Without an improvement in long-term growth in the PC market, it will be difficult for Intel to materially improve gross margins and its operating structure," Joseph wrote this morning.

For all of 2002, Intel earned $3.12 billion, or 46 cents a share, on revenue of $26.74 billion compared with earnings of $1.29 billion, or 19 cents a share, on sales of $26.54 billion during 2001.

For 2003, spending on research and development should be flat at $4 billion. Depreciation is expected to increase to $4.9 billion from $4.6 billion. Intel expects its gross margins to be around 51 percent compared with 50 percent in 2002.

Intel provided no targets for either revenue or earnings for the new year, but analysts had expected earnings of 63 cents a share on sales of $28 billion, on average