Intel’s Profit and Revenue Top Forecast

Intel’s Profit and Revenue Top Forecast
By STEVE LOHR
Copyright by The New York Times
Published: October 13, 2009
http://www.nytimes.com/2009/10/14/technology/companies/14chip.html?th&emc=th


Intel, the world’s largest semiconductor maker, offered further evidence on Tuesday that the global economy was indeed on the mend.

The company reported a third-quarter profit that easily surpassed Wall Street’s estimates, and its revenue was well ahead of the projection that Intel offered investors at the end of August.

The current quarter looks promising as well, Intel said, and the company lifted its revenue forecast to about $500 million above analysts’ estimates.

Intel is a bellwether for trends in the technology industry and the economy as a whole. Its computer chips are the logic engines in most personal computers and in larger computers in data centers that power e-mail, electronic commerce and the Internet. So Intel’s performance suggests that economic prospects are brightening, analysts said.

“Technology should benefit first and foremost in a global economic recovery,” said Edward Yardeni, an independent economist and investment strategist.

Intel, based in Santa Clara, Calif., reported third-quarter revenue of $9.4 billion, well ahead of the analysts’ consensus of $9 billion, as compiled by Thomson Reuters. Still, Intel’s sales remained 8 percent below last year.

Yet Intel executives emphasized the unfolding trend. The third quarter’s revenue was 17 percent higher than in the second quarter, the largest rate of improvement over those quarters in more than 30 years.

Net income was nearly $1.9 billion, or 33 cents a share. The Wall Street estimate was 28 cents a share, and that was after analysts had steadily lifted their earnings forecasts in recent months. In July, the consensus estimate was 15 cents a share, according to Thomson Reuters. In the year-earlier quarter, Intel reported earnings of $2 billion, or 35 cents a share.

Intel’s recovery has been most robust in fast-growing, developing economies like China. But even the mature economies of the United States and Western Europe are showing signs of real improvement, with America slightly ahead of Europe, Stacy J. Smith, Intel’s chief financial officer, said in an interview.

The personal computer market is decisively recovering, although consumers, not companies, are doing most of the buying, Mr. Smith noted.

The upbeat third-quarter report is the latest evidence of growing optimism at the big chip maker. In July, Intel reported that its second-quarter results were stronger than it had expected, even though sales were down 15 percent from the previous year. Yet the downward trend seemed to be broken, cheering both Wall Street and the technology industry.

Then, at the end of August, Intel pointed to stronger demand for its microprocessors and chipsets and raised its revenue projection for the third quarter by $500 million, to about $9 billion.

Investors anticipate that technology companies, led by Intel, will lead the way out of the recovery. Earnings estimates for all the companies in the Standard & Poor’s 500-stock index are projected to be down 25 percent in the third quarter, compared with a year earlier, according to Thomson Reuters. But technology company profits are expected to be down only 14 percent. In July, analysts had expected technology sector profits to be off 20 percent in the third quarter.

Intel, according to some analysts, may have enjoyed a bump in demand in the quarter as major PC makers ordered chips to build machines equipped with Microsoft’s new operating system, Windows 7, which will be officially released Oct. 22.

Typically, analysts say, PC makers like Hewlett-Packard, Dell and Acer accelerate chip orders somewhat later in the year as they prepare for the year-end holiday shopping season. “The PC build cycle is probably earlier this year,” said David Wu, a semiconductor analyst at GC Research.

But with the market strengthening, Intel expects no let-up in the fourth quarter. It projected fourth-quarter revenue of $10.1 billion, plus or minus $400 million, which would be a 7.6 percent increase from the third quarter. That, Intel said, is in line with its typical seasonal increase in sales.