Intel net jumps 48 p.c., gives a rosy outlook

SAN FRANCISCO, USA: Chip major Intel posted a 48-per cent rise in fourth-quarter earnings on Thursday and reported a better-than expected revenue and margins for the fourth quarter. The company gave a rosy outlook for early 2011, defying worries about the chipmaker's minor role in the booming smartphone and tablet computer market.

Intel's revenue for the quarter rose eight per cent from a year earlier to $11.5 billion, while the profit rose to $3.39 billion as against $2.28 billion in the year-ago quarter.

Shares in the world's largest chipmaker gained 2.4 per cent, driven by hopes for strong sales of its Sandy Bridge microprocessors, its newest and most advanced line.

Intel is the first major technology company to report its fourth-quarter results and its upbeat numbers set a positive tone for the rest of the sector. Shares of companies like Dell and Microsoft moved up in after-hours trade.

"The expectation was there might be a miss. There is a lot of concern over smartphones and tablets, but that will take a backseat in the meantime," said Mahesh Sanganeria, an analyst at RBC Capital Markets.

Despite an apparent early success with Sandy Bridge, Intel faces sluggish personal computer sales and a major challenge from the exploding popularity of mobile devices, a market dominated by Britain's ARM Holdings.

Intel's processors are the brains in 80 per cent of the world's PCs but the company has yet to make its mark in mobile gadgets that people increasingly depend on to surf the Web and update their social networking profiles.

"Right now there's just a larger overhang over the stock when it comes to tablets and smartphones. That may be an area where investors are more cautious," said Patrick Wang, an analyst at Wedbush Securities.

But for the shorter term, many investors are betting on a bump in revenue growth from the chip giant's newest product line, considered one of its most important advances in computer processing power. Intel unveiled its Sandy Bridge microchip last week.

"It seems to be getting widespread acceptance from the customers. Even with the consumer market being a little bit weak we expect it to ramp sales nicely in Q1," chief financial officer Stacy Smith told Reuters.

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By the numbers

Shares of Applied Materials, KLA Tencor, Novellus and other producers of chipmaking equipment rallied between 4 and 6 per cent after Intel executives said they were almost doubling capital spending in 2011 to $9 billion, plus or minus $300 million.

Intel is building a new fabrication plant in Oregon and upgrading several existing factories to manufacture its next-generation 22-nanometer microprocessors.

Intel stock rose 2.4 per cent in after-hours trading after closing down marginally at $21.29 on Nasdaq.

Following the results, Intel forecast revenues of $11.1 billion to $11.9 billion in the first three months of 2011.

The fourth-quarter revenue slightly exceeded the $11.37 billion expected by analysts, according to Thomson Reuters I/B/E/S. Analysts, on average, had expected revenue of $10.73 billion in the first three months of 2011.

Intel had a record gross margin of 67.5 per cent in the fourth quarter, compared to 66.7 per cent expected by analysts.

It forecast a gross margin of 64 per cent in the current quarter, plus or minus two per centage points. Analysts had forecast a first-quarter gross margin of 63.5 per cent.

Major technology companies are expected to keep up sales and profit growth in 2011, but economic troubles in the United States and Europe could temper their results.

Intel, however, also faces the unique challenges of safeguarding its over 80 per cent market share in an evolving environment where consumers are choosing mobility and connectivity over processing power.

Apple Inc's iPad and other tablets, powered by ARM-based architectures, consume less power and their longer battery life is winning over users. Some analysts foresee the imminent end of the PC era.

Intel chief executive paul Otellini told analysts on a conference call to watch out for improved versions of Intel's Atom mobile chips in a wide array of tablets this year.

"You will also see Atom processors appear in smartphones, operating at very competitive power levels with performance that will lead the industry," Otellini said.

The Philadelphia Semiconductor Index has surged around 43 per cent since the start of September but Intel's shares gained only about 20 per cent in that time as some investors expected the company might not be able to maintain its record-level margins.

"But the numbers aren't really what matters here. What matters and will overshadow the numbers is the challenges they have in terms of the end markets and what happens with PCs and handsets, and Windows getting ported to ARM and all those challenges which put them in a tough spot," said Jefferies & Co analyst Adam Benjamin.

"The numbers today are not what the business is going to look like in a year from now, (or) two years from now."