April 13, 2010 / 8:26 PM / in 8 years

Intel's knock-out quarter props up tech sector hopes

SAN FRANCISCO (Reuters) - Intel Corp’s sales and margin forecasts trounced Wall Street expectations, reinforcing hopes for an acceleration in the tech sector’s recovery and boosting the chip maker’s stock 3.5 percent.

Intel, bolstering expectations that businesses and consumers will speed up spending after 2009’s belt-tightening, foresees a gross margin of 64 percent -- plus or minus “a couple percentage points” -- for both the current quarter and all of 2010. Wall Street had expected about 60 percent.

That put the world’s top chip maker, which said on Wednesday it was seeing technology upgrades by corporations, on track to potentially surpass the record 64.7 percent margin chalked up in its fourth quarter.

Tech sector shares rallied. Fellow chipmakers Advanced Micro Devices Inc and Texas Instruments Inc rose more than 2 percent after hours, while Microsoft Corp was up more than 1 percent.

“Certainly a strong indication for the rest of technology as we move through earnings season,” said Edward Jones analyst Bill Kreher of Intel’s results. “The cost control during the downturn is helping set a new norm in terms of gross margins for the company moving forward.”

Intel forecast current-quarter revenue of 10.2 billion, plus or minus $400 million. Analysts polled by Thomson Reuters I/B/E/S, on average, expect $9.68 billion.

S&P 500 and Nasdaq index futures firmed, implying gains for both indices on Wednesday.

“Not only is it first to file, it’s also more upstream in the supply chain than other vendors so that bodes well for the entire downstream, the overall sector,” said Endpoint Technologies Associates President Roger Kay.

KNOCK OUT RESULTS

Intel’s margins should expand -- defying fears that they had peaked in 2009’s final quarter -- because sales were going to more expensive chips, like servers bought by corporations now less constrained by the tight budgets of last year.

“What Intel is benefiting from is the pent-up demand, because customers delayed upgrading servers and upgrading desktops over the last several years because of the downturn,” ITIC analyst Laura DiDio said. “They can’t delay anymore, so the floodgates have opened.”

Broadpoint Amtech analyst Doug Freedman said Wall Street is likely to raise financial forecasts for Intel in the wake of the quarterly report.

“I wouldn’t be surprised if Street estimates came up between 8 and 10 percent,” he said.

The company said on Tuesday net income totaled $2.4 billion, or 43 cents a share, in the three months ended March 27, compared with net income of $629 million, or 11 cents a share, in the year-ago period. That exceeded average expectations for 38 cents a share.

Revenue rose to $10.3 billion, above the Wall Street target of roughly $9.84 billion.

Shares of the Santa Clara, California-based company rose 3.5 percent to $23.56 in extended trading after closing at $22.76 on Nasdaq.

“We’re bringing out a whole generation of ... exciting products for the industry and look to be driving more high-end demand than we were anticipating when we started the year,” Intel Chief Financial Officer Stacy Smith said.

Additional reporting by Gabe Madway, Ritsuko Ando and Susan Zeidler; Editing by Edwin Chan and Richard Chang

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