Intel's Third-Quarter Profit, Outlook Tops Forecasts


Intel on Tuesday posted a 43 percent rise in quarterly profit on strong sales of microprocessors for notebook computers and it gave a better-than-expected outlook, sending shares up.

Intel's headquarters in Santa Clara, California.
Paul Sakuma

The news indicated that the world's top maker of microchips was gaining market share from smaller rival Advanced Micro Devices, and also boded well for personal computer sales in the fourth quarter, analysts said.

"The overall message is one of strong demand," Intel Chief Financial Officer Andy Bryant said in a telephone interview, adding that third-quarter revenue rose 16 percent sequentially, which was the highest growth rate in 10 years.  "All worldwide markets saw reasonable growth and there's no question that Europe and Asia had the strongest growth," he said. "The U.S. market was pretty normal."

Intel said its third-quarter net income rose to $1.86 billion, or 31 cents per share, from $1.30 billion, or 22 cents per share a year earlier. The results were helped by Intel's restructuring efforts as it moved to new technology.

Revenue rose 15 percent to $10.1 billion, Intel said. Wall Street was looking for revenue of $9.6 billion and earnings per share of 30 cents in the third quarter, according to Reuters Estimates.

"There were some concerns going into the quarter that there was an overbuild going on in the PC market and that would negatively affect the PC supply chain in Q4, but so far anyway, with Intel's numbers, they have posted some pretty solid numbers," said Sam Rahman, a portfolio manager at Baring Asset Management in Boston, which owns shares in Intel.

Intel also named a new chief financial officer on Tuesday: Stacy Smith, who joined the company in 1988. She will report to Bryant, who is becoming the chief administrative officer.

Chief Executive Paul Otellini said a on conference call the moves were part of Intel's long-term management succession planning. He also said the company has seen no signs of an overbuild.

"We entered Q4 with confidence of a strong demand environment," Otellini said.
Margins Rebound

Over the past 18 months, Intel has restructured and is now moving to new chip-making technology, which gives it more semiconductors out of each silicon wafer. The company is also gaining market share against AMD .

For the current quarter, Intel forecast revenue of $10.5 billion to $11.1 billion and a gross margin of 57 percent, plus or minus a couple of percentage points, up from 52.4 percent in the just-reported period.

Intel's Profit Beats Forecasts

Analysts had expected Intel to post fourth-quarter revenue of $10.4 billion, according to Reuters Estimates.

Intel said its average selling prices were flat in the third quarter compared to the second quarter, which was better than expected.

"The magnitude by which they beat expectations was a surprise" for both the reported quarter and the outlook, said Needham analyst Edwin Mok.

Shares of Intel , based in Santa Clara, California, rose 5.1 percent to $26.78 in after hours trading Tuesday compared with their Nasdaq close of $25.48. AMD shares rose 2.4 percent to $14.30 from their close of $13.96.

Intel's stock has been trading at more than 18 times expected 2008 earnings. Before the latest results, Intel shares were up nearly 30 percent this year, while those of AMD have dropped about 30 percent.

Stifel Nicolaus analyst Cody Acree said that Intel's gross margin forecast was well above his expectations, but said it was still too early to draw conclusions about consumer demand.

"Obviously HP, Dell and others are placing decent orders to give Intel some visibility," he said. "It means that at least people are confident that maybe there is demand for their products but we don't know what consumers are going to do."