Business

Intel earnings rise 16% in second quarter

Intel, the largest chip maker and a bellwether stock of the technology industry, reported Tuesday that its profit rose 16 percent because of healthy growth in the computer industry and strong demand for notebook computers.

The report caps a period of good financial news for the chip industry, coming just a week after a rival chip maker, Advanced Micro Devices, defied Wall Street's pessimistic predictions and posted a profit of 3 cents a share, its first profitable quarter in three quarters. A.M.D. said last week that it also had strong sales of microprocessors.

"Demand is strong right now," said Andy Bryant, Intel's chief financial officer. "Worldwide, business is good." Mr. Bryant said that customers were continuing to show a preference for lightweight notebooks, which have a higher average selling price than traditional desktop PC's.

Intel's profit was $2.04 billion, or 33 cents a share, in the second quarter, compared with $1.76 billion, or 27 cents a share, in the period a year ago. Revenue rose 15 percent, to $9.23 billion, the middle of the range of $9.1 billion to $9.3 billion that Intel projected in June.

Analysts were expecting Intel to earn 32 cents a share on sales of $9.22 billion, according to Thomson Financial.

The strong report is in stark contrast to Intel's predicament this time last year, when the company faced swollen inventories and chip development problems that forced it to recast its technology strategy.

But Tuesday's news failed to inspire Wall Street, as shares of Intel dropped 4.4 percent in after-hours trading. The company's shares rose 48 cents, to close at $28.71, in the regular session, before the report was released.

A factor in the sell-off was that Intel's gross profit margin, though improving, came in slightly below analysts' forecasts because of higher sales of lower-cost products like the chips used in Microsoft's Xbox game console and desktop PC's. Intel's gross profit margin was 56.4 percent in the second quarter, while analysts were hoping for 57 percent.

Apjit Walia, an analyst with RBC Capital Markets, said that the mild disappointment with the gross profit margin in the second quarter was of no real concern because the company was on track for the long term.

"I think they performed well and that PC demand is very robust," Mr. Walia said. "I think they are going to have a very strong third and fourth quarter."

Looking ahead, Intel forecast third-quarter revenue in a range of $9.6 billion to $10.2 billion, with a gross profit margin for the quarter of about 60 percent, plus or minus a couple of percentage points.

Intel, based in Santa Clara, Calif., reported that revenue for its Mobility Group, which includes its Centrino chips for notebooks, was $3.15 billion, up from $2.1 billion a year earlier. Revenue for the unit that sells chips for business computers and servers was $6 billion, an increase from $5.91 billion a year ago. Intel executives also said the company set revenue records in China and in Latin America.

Earnings in the second quarter were helped by a previously disclosed tax-related gain of 2 cents a share. During the second quarter last year the company posted a similar tax-related gain of 1.3 cents a share.

Intel raised its capital spending projections for 2005 to approximately $5.9 billion, plus or minus $200 million, compared with the previous expectation of $5.4 billion to $5.8 billion, to meet higher demand.

Earlier this month, A.M.D., based in Sunnyvale, Calif., filed a broad antitrust suit against Intel, accusing Intel of using illegal business tactics like discriminatory rebates and subsidies to prevent customers from using A.M.D. microprocessors.

In a conference call with financial analysts late Tuesday, Paul S. Otellini, Intel's chief executive, said the company intended to compete as aggressively as it always had, despite the lawsuit. "We're confident that this latest suit, like the others, will be resolved favorably to Intel," he said.

In March, the Fair Trade Commission in Japan issued a recommendation requiring that Intel change certain business practices in the Japanese market. Mr. Otellini said that while Intel strongly disagreed with the findings of the agency, the company accepted the decision so that it could stay focused on serving customers.

Intel is also being investigated by antitrust regulators of the European Union, who last week conducted unannounced visits to the offices of Intel and its customers in several European countries. (nytimes.com)

 

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