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Intel profit beats expectations, future less clear
October 15, 2008 / 12:38 PM / 9 years ago

Intel profit beats expectations, future less clear

SAN FRANCISCO (Reuters) - Technology bellwether Intel Corp posted a 12-percent rise in quarterly profit as the world’s biggest computer chipmaker said demand, while uncertain, was holding up despite the global economic crisis.

<p>Intel Corporation President and CEO Paul S. Otellini walks off the stage following his keynote address at the Oracle OpenWorld conference in San Francisco, California September 23, 2008. REUTERS/Robert Galbraith</p>

Intel 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, is around 2 percentage points lower than Wall Street had hoped but better than many had feared.

Meanwhile, profit in the quarter topped Wall Street targets and Intel shares rose 5 percent in after-market trade.

Investors said Intel is benefiting from one of its strongest product line-ups in years, is executing well and keeping a lid on costs. But the company’s uncertainty over the financial crisis’s influence on the computer sector limited the positive effect on other tech stocks.

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

“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.

Intel’s shares rose 4.5 percent to $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. The stock had closed down 6.2 percent ahead of the report in regular session trading on Nasdaq on fears it would do worse.

In other tech earnings news, Altera Corp, which makes programmable chips, said third-quarter profit climbed 37 percent, topping Wall Street targets and pushing its shares up 6 percent to $18.10 in late trade.

But Linear Technology Corp said its second-quarter revenue ending in December 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 14 percent to $22.31.


Santa Clara, California-based Intel said the average selling price for its microprocessors dipped as sales increased of its smaller, lower-priced 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, according to Reuters Estimates.

“In light of what’s going on in the economy, in the market, it’s nice to see a company come through and actually beat numbers,” said Jason Pride, director of research at Haverford Trust Co., which owns Intel shares.

But Pride cautioned that the current fourth quarter and next year is when business will probably see “a little bit more of the tech demand seepage as the economy softens.”

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 company also 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.

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.

Market research firm Gartner Inc also released data on Tuesday showing that personal computer unit shipments surged 15 percent in the third-quarter, but that much of this growth was for mini-notebooks that sell at prices under $500.

Additional reporting by Daisuke Wakabayashi in Seattle; Susan Zeidler and Alex Dobuzinkskis in Los Angeles; Editing by Bernard Orr

Our Standards:The Thomson Reuters Trust Principles.
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