Intel net rises, margins hold up; shares climb

SAN FRANCISCO Tue Oct 14, 2008 6:29pm EDT

A woman checks her mobile phone as she walks past an Intel Core Duo advertisement outside a computer shop in Beijing March 26, 2007. REUTERS/Claro Cortes IV

A woman checks her mobile phone as she walks past an Intel Core Duo advertisement outside a computer shop in Beijing March 26, 2007.

Credit: Reuters/Claro Cortes IV

SAN FRANCISCO (Reuters) - Technology bellwether Intel Corp (INTC.O) reported a 12 percent rise in quarterly profit and said year-end revenue could be lighter than expected amid uncertain demand, but the outlook was better than feared, sending shares higher.

The world's biggest computer chipmaker said on Tuesday it expects revenue in the fourth quarter of $10.1 billion to $10.9 billion. The midpoint of that range, $10.5 billion, was a little over 2 percentage points lower than Wall Street hopes.

"These are numbers that if you have to be somewhere with a slower future, this may not be a bad place to be," said Mike Holland, fund manager at Holland & Co., which oversees assets in excess of $4 billion, including Intel, IBM and Apple.

"For me, this is a relief rally more than anything else," said Sean Conner, senior equity analyst, First American Funds in Minneapolis.

Intel's shares were up 4.5 percent at $16.65 in extended trade as analysts and investors said the lowered outlook was better than many had hoped against the backdrop of a global financial crisis. Shares closed down 6.2 percent ahead of the report in regular session trading on Nasdaq on fears it would do worse.

"The company's executing very well, and the signal regarding the rest of the industry is there does seem to be slowdown but it's not catastrophic," said Hans Mosesmann, an analyst with Raymond James in New York.

Altera Corp (ALTR.O), which makes programmable chips, also said third-quarter profit climbed 37 percent, topping Wall Street targets and pushed its shares up nearly 6 percent.

But Linear Technology Corp (LLTC.O) said its second-quarter revenue would fall 10 to 20 percent from the prior quarter due to a decline in orders and softness in the industry, sending its shares down 11 percent.

FINANCIAL CRISIS IMPACT UNCLEAR

Santa Clara, California-based Intel said the average selling price for its microprocessors dipped as sales increased of its lower margin Atom processor for use in new mobile computers that are smaller than conventional notebooks. It said it generated $200 million in revenue from Atom chip sales.

"As we look to Q4, it is hard to know what impact the financial crisis will have on end customer demand," Chief Executive Paul Otellini said in a statement. He added that he was confident in his company's ability to outpace competitors "at a time when business levels are difficult to predict."

Third-quarter net income rose to $2.01 billion, or 35 cents per share, from $1.86 billion, or 31 cents per share, in the year-ago quarter. Revenue rose 1 percent to $10.2 billion.

Wall Street had been looking for a third-quarter profit, on average, of 34 cents per share, according to Reuters Estimates.

The company, which is the industry's biggest investor in the next generation of chip production equipment, trimmed its capital spending plans modestly for 2008 to $5 billion, plus or minus $100 million, from $5.2 billion previously.

The Santa Clara, California-based company said it benefited from a lower tax rate around 29 percent, below the 33 percent it had expected to pay during the third quarter.

Intel had "some really strong results," Chief Financial Officer Stacy Smith said in a telephone interview.

"But based on the credit market issues that are roiling the market it's a little harder to get a handle on what end demand is in the fourth quarter," he told Reuters.

Smith said that business in the third quarter in the Asia-Pacific region was above seasonal patterns, including Japan. He said Japan did well because of a shift to laptops from desktops.

But Smith said Europe and the United States were below seasonal patterns. "We did see a little bit of weakness in the corporate sector of the business," he said of Europe and the United States.

Analysts had expected revenue, on average, to rise 1.6 percent to $10.25 bln, according to Reuters Estimates. The range of forecasts had varied from flat growth to 4 percent.

"I think that (Intel's tempered outlook) reflects where we are. I think a lot of people should be happy if that's the magnitude of the declines in people's businesses," Holland said.

Gross margin jumped to 58.9 percent from 55.4 percent in the second quarter ended in June. Intel said its ability to cut microprocessor production costs as microprocessor revenue rose helped margins, even as demand shifted toward lower margin chips used in a new class of small computers called netbooks.

Intel said it expected gross margin to remain at recent high levels around 59 percent during the fourth quarter, plus or minus a couple of percentage points.

(Editing by Bernard Orr)

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