Intel Forecast Tops Estimates as PC Market Rebounds

Intel Forecast Tops Estimates as PC Market Rebounds

Oct. 13 (Bloomberg) -- Intel Corp., the world’s biggest chipmaker, forecast sales and profitability that topped estimates, indicating that computer demand is returning to pre- recession levels. The shares jumped as much as 6.9 percent.

For the fourth quarter, Intel forecast sales of $9.7 billion to $10.5 billion, compared with the $9.5 billion average estimate in a Bloomberg survey. Third-quarter net income dropped to $1.86 billion, or 33 cents a share, the company said today in a statement. Revenue fell 8.1 percent to $9.39 billion.

Today’s numbers were all the more impressive because Intel raised its outlook two months ago, said Patrick Wang, an analyst at Wedbush Morgan Securities in New York. Chief Executive Officer Paul Otellini expects the PC industry to grow this year, defying analysts’ predictions.

“They had a phenomenal quarter once again,” said Wang, who expects the shares to outperform their peers. “They beat expectations on revenue and from a gross-margin standpoint.”

Intel rose as much as $1.41 to $21.90 in extended trading. The shares, up 40 percent this year, closed at $20.49 on the Nasdaq Stock Market.

Net income was down 7.8 percent from $2.01 billion, or 35 cents a share, in the year-earlier period. In August, Intel said that third-quarter sales would be as much as $9.2 billion, compared with an August prediction of up to $8.9 billion.

‘Healthy Sales’

Gross margin, the percentage of sales remaining after the costs of production, was 58 percent in the third quarter. That compared with Intel’s prediction of about 53 percent.

This quarter, the margin will widen to 62 percent, give or take 3 percentage points, the company said. The top end of that range, 65 percent, would be Intel’s highest level of profitability this decade. The previous peak was 63.9 percent in the fourth quarter of 2000, according to Bloomberg data.

“What we saw in the third quarter was healthy sales in the back-to-school season, healthy sales in China, and we saw the worldwide supply chain putting in place what I term is a healthy level of inventory,” Chief Financial Officer Stacy Smith said in an interview. “We saw the market cooperating. We started to see a recovering PC market.”

Intel’s report kicked off two weeks of earnings by big U.S. technology companies, including International Business Machines Corp., Google Inc. and Microsoft Corp. The use of Intel’s chips in everything from laptops to supercomputers makes its sales a barometer of industry demand.

Surprising Strength

“Everyone has been pretty surprised at the strength of technology throughout the downturn,” said Kim Caughey, an analyst at Pittsburgh-based Fort Pitt Capital Group Inc., which owns about $1 million worth of Intel shares. “Whether or not we’re still in a recession, companies and retailers and customers alike are very careful about where they’re spending their money. Clearly they’re still buying computers and all things electronic.”

Microsoft is introducing a new Windows operating system this month -- an event that typically triggers a surge in PC orders. The question now is how long that boost will last. Orders for PC parts are ebbing, indicating that Intel’s sales may slow again, said Daniel Berenbaum, an analyst at Auriga USA in New York.

PC makers have accumulated inventory, which may curb their demand for Intel’s chips later, he wrote in a report.

Gartner Inc., a research firm in Stamford, Connecticut, expects the PC market to grow in the fourth quarter. For the full year, it predicts a decline in global shipments of 2 percent to 285 million.

China’s stimulus program may be helping the market by giving shoppers money to spend on PCs, said Edwin Mok, an analyst for Needham & Co. in San Francisco. He recommends buying Intel shares, which he doesn’t own.

“The PC has been one of the bright spots this year,” Mok said.

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