Intel: Chip industry has nearly recovered

The semiconductor giant expects to hire again as its first-quarter results blow way past estimates.

By Charley Blaine Apr 13, 2010 10:14PM

Intel © Pichi Chuang/ReutersUpdated: 11:30 a.m. ET, April 14


Oh, all that gloomy talk that Alcoa's (AA) earnings provoked. Which was immediately discarded late Tuesday when Intel (INTC) reported its startling first-quarter results.

For a stock market that was tired of results that were generated by cutting costs and bodies, this report was just plain catnip.

It had everything: a big jump in revenue, a huge jump in earnings, improved guidance. Talk about how mobile computing and mobile telephony is now a huge megatrend.

Perhaps best of all, Intel offered a promise of new hiring. As in 1,000 to 2,000 new jobs. Or, as CEO Paul Otellini said, "The industry is nearly fully recovered."

Intel shares, which had jumped 4% after hours, were up 3% to $23.44 at 11:30 a.m. ET. They'd hit a new 52-week high of $23.69 at 10 a.m.

Shares of its competitors and others rose as well.

Stock index futures traded higher in the overnight markets on the Intel news as well as good news from railroad operator CSX (CSX). Japan's Nikkei 225 Index ($JP:N225) was up 1% to 11,257 in early trading.Intel

Those moves suggest a strong open for U.S. stocks on Wednesday. The Standard & Poor's 500 Index ($INX) may finally break above 1,200 for the first time since September 2008.

The only worry: The stock market was assuming great earnings, and some investors will sell on the news. This is not something one can dismiss. The stock market peaked on Jan. 19, just after Intel reported strong fourth-quarter results, and fell about 8% over the next three weeks.

Intel said the quarter was its strongest first quarter since the company was founded in 1968, aided by new microprocessors used in personal computers and in servers that arrived just as companies and consumers became more receptive to buying hardware.

"Demand for these new products has been incredible," Otellini said during a conference call with analysts, adding that Intel is seeing signs of corporate technology spending improving.

The numbers were gaudy: Revenue was up 43% to $10.3 billion and well ahead of the consensus Street estimate of $9.4 billion.

And the second quarter will be dandy, too. Revenue is expected to hit $10.2 billion in what is historically its seasonally weakest quarter. Advanced Micro Devices

Look for analysts to boost their estimates, Doug Freedman, an analyst with with Broadpoint Amtech, told Reuters.

Net income was up 288% to $2.4 billion, or 43 cents a share, solidly ahead of the Street estimate of 38 cents a share. A year ago, Intel earned $629 million or 11 cents a share.

The company's gross profit margin, a key profit indicator, was 63.4%, better than expected, and Intel sees the margin improving to 64% in the second quarter and to as much as 64.7% by the end of the year.

So, what does all this mean? Intel had been saying for some time that it was seeing an improvement in its business. And Tuesday, it delivered the numbers at on a year-over-year basis.


There was one mystery: Why had sales of the Atom chipset, used to fuel netbook computers, fallen 19% from the fourth quarter to $355 million? Was something amiss?


The answer, at least according to Otellini during the conference call: So many new netbook products came out in the fourth quarter that sales were pushed sharply higher. They usually fall off in the first quarter -- and did. It was the fourth-quarter results that were so big.


No, Otellini added, there's nothing wrong with the netbookm business. "I still think there will be significant growth in the netbook business year-over-year."


And that's good for the Atom chip, either in its current design or in a new, more powerful Dual Core version due this quarter. 

Business is good, Otellini said. There is big demand for computers of all sizes, and Intel should get a boost from chip demand for Apple (AAPL)'s new iPad and for other tablet computers.


Apple was up 0.3% after hours to $243.25.

What Intel sees in terms of demand means personal computer makers are seeing it, too. Dell (DELL) was up 1.2% after hours to $15.91. Hewlett-Packard (HPQ) rose 0.8% to $54.20. Dell

The Intel report means that rivals have a chance to compete, too. Advanced Micro Devices (AMD) was up 2.9% to 9.84 after hours. Texas Instruments (TXN) was up 2.6% to $26.55.

Microsoft (MSFT), whose software it developed with Intel chips in mind, was up 1.1% to $30.78. (Microsoft is the publisher of MSN Money.)



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