Intel Cuts Outlook On Economic Woes, But Q2 Profit Beats

Investor's Business Daily

No. 1 chipmaker Intel late Tuesday became the latest tech company to lower its outlook, citing the global economy, but its Q2 profit beat expectations on strong data center chip sales.

Intel (INTC) shares fell 1.5% in after-hours trading, after it released its results. Shares rose 1%, to 25.38, in the regular session.

The Santa Clara, Calif.-based company became the latest tech firm to warn about economic challenges, joining such companies as archrival Advanced Micro Devices (AMD) and Applied Materials (AMAT), the top producer of chip-making gear.

Still, CEO Paul Otellini said the company continues to make inroads in getting its chips inside smartphones, tablets and other mobile devices.

"As we enter the third quarter, our growth will be slower than we anticipated due to a more challenging macroeconomic environment," Otellini said in a statement. "With a rich mix of ultrabook and Intel-based tablet and phone introductions in the second half, combined with the long-term investments we're making in our product and manufacturing areas, we are well positioned for this year and beyond.

For the current quarter, Intel expects $14.3 billion in sales, up a hair from $14.23 billion in Q3 2011, but less than the $14.6 billion analysts had forecast. It expects a gross profit margin of 63%, where analysts polled by Thomson Reuters had been expecting 64.2%.

For the second quarter, Intel said it earned 54 cents a share, even with the year-earlier but 2 cents better than analysts had forecast. Sales rose 3.8% to $13.5 billion, a tad shy of the $13.56 billion analysts had targeted.

Still, given the negative reports lately about weak PC sales, Intel surprised investors by managing to grow its PC chip business. The PC chip group's sales rose 3% from Q1. Sales of processors for data center gear, though, rose 14% sequentially, compared with 5% overall sales growth.

Judging by Intel's declining share price of late, many investors were expecting a "nightmare scenario" from Intel, which didn't materialize, says Patrick Moorhead, an analyst with Moor Insights & Strategy. Intel's data center chips, which power cloud computing and mobile devices on the back end, helped Intel in Q2, he says.

PC Chip Sales Up

Intel's PC chip sales rose 4% to $8.68 billion from the year-ago quarter. Last week, research firms Gartner and IDC said worldwide PC shipments fell 0.1% from a year ago. But Intel's data center chip sales were up 15%, to $2.8 billion, vs. Q2 2011.

For the full year, Intel expects revenue growth of 3% to 5%, down from its prior outlook for high single-digit growth. Intel expects its gross profit margin to climb to 64% as it ramps up production of next-generation computer chips. Intel is making a transition to 22-nanometer chips using a new 3D tri-gate transistor design.

Intel has high hopes for a new class of thin and light notebook PCs called ultrabooks that run on its chips. It also expects a lift from the release later this year of Microsoft's (MSFT) next computer operating system, Windows 8.

On a conference call with analysts, Otellini said Intel is tracking more than 140 ultrabooks in development that use its Ivy Bridge processors. Of those, more than 40 will have touch-screens and a dozen will be notebook-to-tablet convertibles. Intel also is tracking more than 20 Windows 8 tablets.

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