Intel trumps forecasts, bodes well for PC sector

By Alexei Oreskovic

SAN FRANCISCO (Reuters) - Intel Corp's quarterly results and outlook blew past Wall Street forecasts on better-than-expected consumer demand for PCs, especially in Asia, setting an auspicious tone for the technology sector.

Shares of Intel, the world's largest chipmaker, jumped 8 percent on the report, driving Standard & Poor's 500 stock index futures sharply higher and bolstering technology shares such as arch rival Advanced Micro Devices Inc.

Intel projected third-quarter revenue at $8.1 billion to $8.9 billion, compared with analysts' average forecast of $7.8 billion, according to Reuters Estimates.

CFO Stacy Smith said fourth-quarter gross margins could scale the high end of a "normal" range -- which Intel defines as 50 to 60 percent -- due partly to declining production costs for new generations of chips and other factors.

Intel's strong showing came despite what it described as weak demand from the corporations that traditionally are big buyers of computer equipment, and comments by Intel executives that Microsoft's forthcoming Windows 7 operating system is unlikely to revive corporate spending this year.

"You have an $8 billion quarter with very little enterprise spending taking place," said Broadpoint Amtech analyst Doug Freedman. "The consumer is healthier than we expected."

Excluding charges for a European antitrust fine, Intel said it earned 18 cents a share in the second quarter, beating the average forecast of 8 cents according to Reuters Estimates.

Revenue in the three months ended June 27 was $8 billion, down 15 percent year-over-year, but well above the average $7.27 billion expected by analysts.

Smith told Reuters that computer markets were strengthening and there were "pockets of relative strength" in consumer PC markets, as well as in the Asia Pacific and in China.

The company forecast third-quarter gross margin at 53 percent, plus or minus 2 percentage points, an improvement from the second quarter's 51 percent.

"They guided gross margins for the third quarter of 53 percent and the whisper was 50 percent to 51 percent. A nice way to kick off earnings season for tech companies," said Patrick Wang, an analyst at Wedbush Morgan.

TECH SHARES UP

Intel posted a second-quarter net loss of $398 million, or 7 cents a share -- its first quarterly loss since 1986 -- after taking charges linked to a $1.45 billion fine imposed by European regulators, which ruled in May that Intel abused its market position to squeeze out AMD. Intel intends to appeal.

This time last year, Intel earned $1.6 billion in net income, or 28 cents a share.

Intel has felt the effects of the recession and a slowdown in IT spending, though Chief Executive Paul Otellini said in April that PC sales had "bottomed out" in the first quarter and that the industry was returning to seasonal business patterns.