Intel Profit at High End of Target

SAN FRANCISCO (Reuters)—Intel Corp., the world's largest chip maker, on Tuesday reported a 25 percent rise in quarterly profit on strong demand for its Centrino notebook computer chips, sending shares up 3 percent and allaying fears of an industry slowdown.

The results, which sent a wave of relief through Wall Street after last week's bombshell earnings shortfall from International Business Machines Corp., came in at the top end of Intel's forecast and above the average analyst estimates.

"We still see pretty solid demand around the world," Intel Chief Financial Officer Andy Bryant said in an interview. "I can't yet say that I see the signs of weakness that IBM saw."

Intel also raised its forecast for annual gross profit margins and boosted its yearly budget for spending on chip factories by $500 million, lifting shares of suppliers of semiconductor manufacturing equipment.

"Intel beat across the board," said Steve Neimeth, portfolio manager at AIG SunAmerica Mutual Funds, who oversees funds owning about 200,000 Intel shares.

Profits Comfortably Ahead of Expectations

Net income in the first quarter ended April 2 rose to $2.15 billion, or 34 cents a share, compared with a year-earlier profit of $1.73 billion, or 26 cents a share. Sales rose to $9.43 billion from $8.09 billion, slightly below the all-time company record of $9.6 billion set in the fourth quarter of 2004.

The results from the Santa Clara, California-based company topped the average Wall Street expectation of a profit of 31 cents a share on sales of $9.31 billion, according to a poll of analysts by Reuters Estimates.

"I think the fear going in was that forward estimates were too high and that is clearly not the case," said Chris Baggini, manager of the Gartmore Growth Fund, which owns Intel stock.

Intel shares rose as much as 3.6 percent to $23.45 in after-hours action following the news, which came after the close of regular session trading. That built on a 1.9 percent gain on Nasdaq ahead of the report. The stock is about flat for the year.

Intel gained more than 3 points of market share for mobile PC processors last year and said on Tuesday that notebook chips had led demand in the quarter.

Intel said it expected revenue in the second quarter to be in a range of $8.6 billion to $9.2 billion, in line with the average analyst expectation of $8.9 billion. Annual gross profit margins, the percentage of sales left over after accounting for production costs, are expected to be about 59 percent, plus or minus a few points, a point ahead of its earlier target.

First-quarter margins of 59 percent, at the high end of company targets, were helped as new models of PC chips were qualified to be sold to customers a quarter ahead of schedule. That had the effect of reducing the company's expense line while boosting inventory levels, which rose a greater-than-expected 7 percent.

"The margins look fantastic and they bumped up margin guidance. They're also raising cap-ex guidance and getting new products out faster. It seems to me like there are a whole lot of good things going on here," said Richard Parower, a portfolio manager at J&W Seligman.

The first-quarter report came in at the top end of an upbeat financial forecast Intel gave on March 10. At the time, Bryant bumped up the company's revenue and profitability targets after Intel's manufacturing plants scrambled to meet demand for notebook computer chips.

The stock market fell precipitously over the past several days after IBM reported a profit that fell short of already low expectations, and investors had been jittery ahead of Intel's report.

Intel boosted its budget on capital spending for the year to a range of $5.4 billion to $5.8 billion, from an earlier target of $4.9 billion to $5.3 billion. Shares of chip equipment makers rose—Applied Materials Inc. were up more than 3 percent and KLA-Tencor Corp. shares were up more than 4 percent.

Bryant said in the interview that the company has continued to see tightness in supply for some products, and has been having success with its 65-nanometer manufacturing process. Intel has the world's largest factory network of any chip maker, with sites in the United States, Israel, and Ireland.

(additional reporting by Michael Flaherty, Megan Davies, and Mark McSherry in New York)

Copyright © 2005 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in ExtremeTech.