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
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.
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
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)