January 14, 2010 / 9:40 PM / 10 years ago

Intel beats Street view, bodes well for sector

SAN FRANCISCO (Reuters) - Intel Corp’s fourth-quarter revenue blew past Wall Street forecasts and it gave a bullish margin outlook on higher prices and firm demand for server chips, reinforcing hopes for a strong recovery in technology.

Paul S. Otellini, President and CEO of Intel Corporation, delivers his keynote speech at the 2010 International Consumer Electronics Show (CES) in Las Vegas January 7, 2010. REUTERS/Mario Anzuoni

Intel, whose stock extended gains after rising 2.5 percent in regular trading, said on Thursday its gross profit margin in the fourth quarter rose to a record 65 percent. While it forecast a drop to 59 percent to 63 percent in the seasonally weaker current quarter, that still surpassed analysts’ average projection of 58.8 percent.

Some technology stocks rallied on the news. Intel chip rival Advanced Micro Devices Inc gained 1.6 percent, while Microsoft Corp climbed nearly 1 percent.

Many analysts predict a return of corporate spending in the second half of 2010 that would lift the tech sector out of its worst downturn in decades. Some say new spending has already begun.

“The big picture is that tech remains investable,” said Wedbush Morgan’s Patrick Wang. “They’re giving us reassurance that the PC sector remains intact and more importantly, that we’re seeing incremental improvements in the economy and that we’re probably well on our way to recovery.”

“What they did on the gross margin line was extremely impressive, which was due to the massive upside in revenue.”

Intel said average selling prices of its microprocessors rose from the third quarter, driving a 21 percent revenue increase in its data center business which makes server chips, and a 10 percent revenue rise in its PC business.

Net income totaled $2.3 billion, or 40 cents a share, in the three months ended December 26, beating expectations for 30 cents according to Thomson Reuters I/B/E/S.

That was many times larger than the net income of $234 million, or 4 cents a share, in the year-ago period when the company incurred a $1.1 billion write-down mainly because of an investment in wireless service provider Clearwire Corp.

“They did a nice job on the topline which exceeded our expectations. The gross margins were better than we had even expected,” said Broadpoint AmTech analyst Doug Freedman.

“Looking forward, we’re encouraged by the low capital spending and the projection that gross margin would continue to operate within a very tight range,” he said.

Revenue rose to $10.6 billion from $8.2 billion in the year-ago period, and above the Wall Street target of roughly $10.2 billion.

Intel, based in Santa Clara, California, forecast current-quarter revenue of $9.7 billion, plus or minus $400 million. This exceeds the $9.3 billion average estimate of analysts polled by Thomson Reuters I/B/E/S.

Intel’s stock rose as much as 2.1 percent to $21.94 after hours, before trading at $21.63. It rose 2.5 percent to close at $21.48 in regular Nasdaq trading.

Editing by Edwin Chan and Richard Chang

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