UPDATE 5-Intel outlook defies worries of PC decline
* Q4 outlook beats expectations
* GAAP EPS 65 cents
* Stock rises after hours (Adds detail on outlook and Windows release; updates stock price)
By Noel Randewich
SAN FRANCISCO, Oct 18 (Reuters) - Intel Corp forecast quarterly revenue above Wall Street's expectations, defying concerns that tablets and a shaky economy are eating into demand for personal computers.
Intel shares moved sharply higher after the company beat earnings expectations and said developing countries like China are fueling expansion and helping make up for slower growth in the United States and Europe.
"Guidance is well above consensus estimates, but below seasonality," said Patrick Wang, an analyst at Evercore Partners. "They are giving us a realistic look at the fourth quarter and it seems like they are guiding conservatively."
Intel's processors are used in 80 percent of the world's PCs but the company has failed to gain traction in increasingly popular mobile gadgets like Google Inc's Android smartphones and Apple Inc's iPad, which some people are buying instead of laptops.
Chief Financial Officer Stacy Smith said Intel's outlook was a little lower than normal for this time of year, mostly because of weakness in Europe's economy.
Corporate information technology spending has held up in recent quarters despite the lackluster economy, helping sales of Intel's high-margin server chips.
Tech companies such as Facebook are also investing heavily to build out their computing capacity, helping data center sales for the world's leading chipmaker rise 15 percent in the quarter.
"Emerging markets are good, enterprise is strong, the mature market consumer is a little bit weaker," Smith told Reuters. "I'd say Europe was a little bit weaker than the U.S."
In the third quarter, sales of Intel's Atom mobile chips plummeted 32 percent, reflecting consumers' growing preference for tablets over netbook PCs the Atom chips are widely used in.
Shares of Intel have risen about 11 percent this year, outperforming the Nasdaq composite index, which has been flat. Analysts recommending the company say it has been punished too much for its lag in mobile computing and point to the stock's 3.6 percent dividend yield.
Intel said it spent $4 billion to buy back shares during the third quarter and authorized another $10 billion for more buybacks.
The Santa Clara, California company is rushing to develop more energy efficient chips for tablets and phones although it is not expected to become competitive in mobile any time soon.
It is also promoting Ultrabooks, a new super-thin category of laptops using Intel processors -- similar to Apple's MacBook Air.
Early Ultrabook models, meant to combine the best features of tablets and laptops, may seem expensive to consumers, analysts say. But as new features are added to them, such as touchscreens and "instant on" capability, Intel expects the Ultrabooks to account for 40 percent of the consumer PC market by the end of next year.
Chief Executive Paul Otellini told analysts on a conference call that the potential release of Microsoft Corp's upcoming Windows 8 operating system next year could fuel higher PC sales and help Intel.
Intel said revenue in the current quarter would be $14.7 billion, plus or minus $500 million. Analysts' average forecast was $14.23 billion, according to Thomson Reuters I/B/E/S.
The company's GAAP net income in the third quarter was $3.5 billion, up 17 percent. Earnings per share were 65 cents. Analysts on average had expected 61 cents.
Intel said non-GAAP revenue in the third quarter was $14.3 billion, up 29 percent and higher than the $13.87 billion expected on average by analysts, according to Thomson Reuters I/B/E/S.
Shares of Intel jumped 4 percent in extended trade after closing up 0.52 percent at $23.40. (Reporting by Noel Randewich; Editing by Richard Chang)
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