Resilient demand for PCs and servers helped Intel Corp’s margin and revenue forecasts blast past Wall Street expectations, allaying fears of a technology spending slowdown and sending its shares up nearly 8 percent.
The company posted net income of US$2.9 billion, or US$0.51 a share, versus a net loss of US$398 million, or US$0.7 a share, in the second quarter of last year. Analysts had expected earnings of 43 cents per share in the second quarter.
Revenue in the quarter ended June 26 was US$10.8 billion, above the US$10.25 billion expected, according to Thomson Reuters I/B/E/S. And its gross profit margin in the second quarter was 67 percent, exceeding the 64 percent expected by analysts.
Intel’s stellar results set an upbeat tone for the industry’s earnings season and the world’s top chipmaker expects a record gross margin of 67 percent for the third quarter, give or take a couple percentage points.
It foresees revenue of US$11.2 billion to US$12 billion, surpassing analysts’ target of US$10.9 billion.
“Demand was stronger than many people anticipated. The Street was concerned corporate spending would be restrained with what’s happened in Europe, and that wasn’t the case,” said John Massey, portfolio manager at Sun America Asset Management.
“The real thing that got the Street going was the gross margin guidance, which they raised. It shows a lot of confidence that the company has for the back half of the year. If the company was at all concerned about demand, you wouldn’t have expected them to raise that number,” he said.
Intel executives said there are clear signs of renewed spending by corporations.
“Now that corporations have some breathing room in the economy and their budgets, you’re starting to see those machines that were four or five years-old get refreshed,” Intel CEO Paul Otellini said in a conference call with analysts.
Otellini added channel inventory remained “lean,” and the company is comfortable with rising internal inventories.
Gleacher&Co analyst Doug Freedman said new products in Intel’s data center group, which makes chips for servers used by corporations, provided a big lift to Intel’s top line.
“I’d expect that the enterprise market continues to be strong into the third quarter,” CFO Stacy Smith said.
Intel has high hopes for the launch of its Sandy Bridge processor later this year. Smith said Intel expects to move up more of its capital expenditures into this year from next year, to prepare for that ramp-up.
Shares in Intel rose 7.1 percent to US$22.50 in extended trade. Microsoft Corp and Cisco Systems Inc rose about 2 percent after-hours. Intel’s arch-foe, Advanced Micro Devices Inc, climbed 5 percent. And Texas Instruments Inc climbed 1.8 percent.
In Asia, investors chased shares of major technology companies following Intel’s upbeat forecasts. Taiwan’s Acer Inc (宏碁), the world’s No. 2 PC vendor, shot up 6 percent while its Chinese rival Lenovo Group Ltd (聯想) gained 4.8 percent. Both stocks hit three-week highs.
“We have more confidence in the tech sector’s recovery now,” said Tom Tang, analyst at Masterlink Investment Advisory (元富證券) in Taipei. “It looks like inventory is healthy and won’t be a problem in the third quarter.”
Apart from Acer and Lenovo, top contract chipmaker Taiwan Semiconductor Manufacturing Co (台積電) also rose 1.7 percent and South Korea’s Samsung Electronics Co, the world’s largest maker of memory chips and displays, jumped 3.4 percent.
Separately, ASML Holding NV, a key supplier to computer chip makers, said yesterday it bounced back to profit in the second quarter from a loss in the same period last year thanks to a sharp rebound in demand.
The company, which supplies tools to Intel and Samsung, said it made a net profit of 239 million euros (US$300 million), compared to a loss of 104 million euros in the same period last year. Revenues rose to 1.07 billion euros from 277 million euros in last year’s second quarter.
ASML said in a statement it expects full-year sales this year to be 10 to 15 percent higher than its 2007 record of 3.8 billion euros as chip makers make up for under investment amid the economic crisis.
“This level of sales is expected to continue into 2011, barring a major macro-economic downturn, as it is supported by a number of fundamental growth drivers,” ASML CEO Eric Meurice said in a statement.
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