Intel's Q4 outlook sets upbeat tone for tech earns

SAN FRANCISCO Tue Oct 12, 2010 7:52pm EDT

A sign is shown at the entrance to the headquarters of Intel Corporation in Santa Clara, California February 2, 2010. REUTERS/Robert Galbraith

A sign is shown at the entrance to the headquarters of Intel Corporation in Santa Clara, California February 2, 2010.

Credit: Reuters/Robert Galbraith

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SAN FRANCISCO (Reuters) - Intel Corp forecast strong fourth-quarter sales and margins as resilient demand from emerging markets and corporations offset weak consumer spending, raising hopes that the technology sector could end 2010 on a strong note.

Shares of Intel and rival Advanced Micro Devices Inc climbed 1 percent in after-hours trade. Analysts said Intel set a positive tone for the latest tech earnings, which some had feared would spell a disappointing holiday shopping season.

Intel's forecast for a better-than-expected December quarter gross margin of 67 percent -- plus or minus a couple percentage points -- affirmed hopes that higher-end spending on servers or data centers may help offset the loss of computer sales to a booming tablet segment.

And Chief Executive Paul Otellini told analysts on a conference call on Tuesday that early demand for Sandy Bridge -- its next-generation chip combining central processing and graphical functions -- was much greater than originally anticipated.

"Intel has set a high bar for tech earnings," said Canaccord Genuity analyst Bobby Burleson. "There was concern about Q4 ... and the number is better than the Street expected."

"The question really is, what's the mix of business? And the margin's good, which seems to hint at a better mix, and maybe a little more business on the data center and server side."

The world's largest chipmaker forecast revenue of $11.0 billion to $11.8 billion in the final three months of 2010, in line with analysts' expectations of $11.32 billion, according to Thomson Reuters I/B/E/S. (For a graphic on Intel earnings, click: link.reuters.com/byj28p)

"We'll see the consumer market growing but likely a little less than you'd normally expect. I attribute that to consumers pulling back a little bit based on economic uncertainty," Intel Chief Financial Officer Stacy Smith told Reuters.

LITTLE NUMBERS DRAMA

Shares of Intel rose to $20 in extended trading after closing 1.07 percent higher at $19.77 on Nasdaq.

Its third-quarter net profit was $2.955 billion, or 52 cents a share, versus $1.86 billion in the year-ago quarter. That was slightly higher than the 50 cents per share expected by analysts.

Revenue in the quarter ended September 25 was $11.1 billion, slightly above the $10.99 billion expected.

Since Intel warned in August about weak consumer demand for personal computers, semiconductor stocks have surged in part on expectations that the worst may be over for the technology sector, and investors are looking for signs of strength to back their bets -- or sell.

Longer term, Wall Street remains concerned about the threat to Intel, whose microprocessor brains drive eight out of 10 of the world's personal computers, from the fast-growing tablet segment popularized by Apple's iPad.

"Consumers will have a limited amount of discretionary income and some will choose to purchase a tablet instead of upgrading an existing PC or purchasing a netbook in any given period," Otellini conceded on the conference call.

The PC industry has also struggled in recent months with soft demand in the United States and Europe as well as rising inventories for chips and other components that have led some customers to reduce their orders for new parts.

Global semiconductor sales could grow just 5 percent next year as the economy continues to struggle, according to market research firm iSuppli.

Intel's results were buoyed by a 3 percent sequential increase in data center sales, a business with higher margins than chips for PCs.

Some investors also believe tech vendors' sales will pick up in the final months of 2010 as shoppers warily spend on holiday gifts -- but an out-sized amount will go to smartphones and tablets while sales of PCs flounder.

The Santa Clara, California-based company has yet to develop much of a presence in smartphones and tablets, which are often powered by energy efficient processors designed by ARM Holdings.

(Editing by Edwin Chan and Richard Chang)

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