Intel Q3 profits beat expectations

SAN FRANCISCO: Intel Corp., the world's largest maker of semiconductors, beat analysts estimates with sharply higher quarterly profit and revenue driven by record shipments of microprocessors and other chips.

The company also forecast higher revenue in line with bullish Wall Street expectations and an equally strong gross margin in the fourth quarter.

Shares of Intel, whose chips are used in four out of five personal computers, rose slightly in after-hours, ticking up to $31.84, a gain of 76 cents from the Nasdaq close.

In an interview with Reuters, Chief Financial Officer Andy Bryant attributed the year-over-year rise of nearly 150 percent in net income to "cost cutting, cost containments (and) investment in new products hitting at a time when demand picks up a little bit."

The company is able to keep gross margins high partly due to strong sales of pricier products like laptops and servers, he said. Intel makes microprocessors, the brains that run a computer, as well as other chips designed to work together to perform various functions.

In a conference call with analysts, Bryant said he did not yet see a notable return of corporate spending, the reduction of which contributed to the chip industry's worst downturn.

Net income for the third quarter was $1.7 billion, or 25 cents per share, more than doubled the $686 million, or 10 cents per share, posted a year earlier, Intel said.

Revenue for the quarter was $7.8 billion, compared to $6.5 billion a year ago, the Santa Clara, California company said.

Intel's third-quarter revenue outpaced its own forecast for $7.6 billion. Analysts had on average had expected Intel to post revenue of $7.7 billion and earnings per share of 23 cents, according to Reuters Research.

Intel saw strong sales in so-called emerging markets, including China, Russia and India in the third-quarter, while sales in the United States grew by a smaller margin, Bryant said.

"What we always expected was to see the mature economies' IT spending lag the economic recovery, which is beginning to see some signs of life," he said.

In particular, sales were strong for notebooks and camera phones in Japan and for back-to-school PCs in the United States, Intel President Paul Otellini said on the call.

STRONG Q4, 2003 FORECAST

For fiscal 2003, revenue and profits should be a "substantial improvement" over 2002, Bryant said, adding that he expects revenue growth of 10 percent to 12 percent for 2003.

In 2002, Intel reported revenue of $26.8 billion and earnings per share of 46 cents.

In the fourth quarter, Intel said it expects to post revenue of $8.1 billion to $8.7 billion. Analysts had expected Intel to post fourth-quarter revenue of $8.3 billion, near the midpoint of its forecast range, according to Reuters Research.

Intel said it sees fourth-quarter gross margin of about 60 percent, plus or minus a few percentage points, compared with 58.2 percent in the third quarter.

Higher revenue and factory utilization will drive the gross margin increase, Bryant said. In the third quarter, gross margin grew by 7.3 percentage points as a result of higher revenue, lower processor unit costs and lower start-up costs, he said.

Charlie Glavin, an analyst with ThinkEquity Partners, said Intel's third-quarter margins and outlook for the fourth quarter were extremely positive. "They just guided for a really strong Q4," he said.

However, Dan Scovel, an analyst with Needham & Co. said the revenue guidance was a little softer than he would have expected. "I think that speaks to the lack of visibility here," he said.

Expectations in the chip industry have been rising in recent months, with companies saying they are seeing stronger than expected consumer sales and providing upbeat outlooks.

© Reuters