Intel Profit, Revenue Surge

APRIL 19, 2011 THE WALL STREET JOURNAL

By SHARA TIBKEN
IntelCorp. reported record quarterly results and provided better-than-expected second-quarter guidance, benefiting from strong growth in all of its product segments and bucking worries about weakening personal computer sales.

The Santa Clara, Calif., giant has posted record results in recent quarters, but worries have emerged about slowing PC demand as consumers increasingly buy tablets like the Apple Inc. iPad. While Intel has seen some signs of consumer weakness, its exposure to business spending--especially on servers—has helped buffer its results.

"What we saw was very strong growth this quarter in terms of all markets, all segments, all geographies," President and Chief Executive Paul Otellini said in an interview.

He added that the results position Intel well to post revenue growth of more than 20% for the full year, with much strength coming from Intel's data center group.

"Investors have clearly underestimated the potential length and magnitude of the current corporate refresh cycle and Intel's prominent spot within that cycle," Edward Jones analyst Bill Kreher said. He added that the biggest driver of Intel's results is servers, which should continue through the year.
Intel forecast current-quarter revenue of $12.3 billion to $13.3 billion. Analysts surveyed by Thomson Reuters expected $11.87 billion.

Intel shares, down 17% over the past 12 months through Tuesday's close, jumped 4.9% to $20.84 after hours as results and guidance blew past estimates. The stock has been sluggish in recent months, with worries about Intel's struggles penetrating the mobile market.

Intel is considered an early indicator of technology demand because its chips serve as calculating engines in about 80% of the world's computers. It has benefited from surging sales over the past several years of laptop PCs, including a variety called netbooks, but it has had problems gaining traction in the fast-growing mobile market dominated by chips based on ARM Holdings PLC architecture.
In addition, demand for tablets and smartphones has been undercutting sales growth for PCs of late, with global computer shipments declining in the first quarter for the first time since the end of the recent recession, data trackers Gartner and IDC said last week.

Mr. Otellini said strong consumer demand in emerging markets offset weakness in the U.S. and Western Europe, though some people in developed nations likely bought tablets instead of refreshing their notebooks.

"That perhaps is some of the reason behind consumer softness in the U.S. and Europe," he said. "But we don't see it globally. ... I think [tablets and PCs] are very complementary devices."
Mr. Otellini also reiterated that he expects the company to be a "strong participant" in smartphones and tablets.

In addition, he said the laptop market was "very good," with industry still going through the early phases of an enterprise upgrade cycle. As a result, Mr. Otellini forecast 2011 PC industry growth in the low double digits, tweaked slightly from expectations in January of low- to mid-teens growth.
Intel recently released its second-generation Core processors--code-named Sandy Bridge--that combine graphics and computing on a single piece of silicon, and the company sees demand for the new processors helping drive results.

The company in January disclosed a design issue in its support chip that works with the Core processor, saying that in some cases, several of the connection ports within those chipsets may degrade over time, potentially interrupting the flow of data from devices like disk drives and DVD drives. The flaw caused the company to lower its forecast for the first quarter, estimating the cost at about $1 billion in repairs and reduced revenue.

The data center unit was particularly strong, with revenue up 32% in the quarter, which Mr. Otellini said is due to servers, as well as a "healthy" cloud business, storage and network. Demand for cloud computing, which allows customers to access data remotely using the Internet or internal networks, has soared and has helped drive strong results across the tech industry. Mr. Otellini expects server strength to be a major growth driver for "many years to come."

Overall, Intel reported a profit of $3.16 billion, or 56 cents a share, up from $2.44 billion, or 43 cents, a year earlier. Excluding items, such as write-downs and amortization of acquisition-related intangibles, per-share earnings rose to 59 cents from 43 cents. Revenue jumped 25% to $12.85 billion.
Analysts polled by Thomson Reuters had forecast earnings of 46 cents a share. The company had expected revenue ranging from $10.8 billion to $11.6 billion, factoring in the $300 million impact from the chip-design issue.

Gross margin fell to 61.4% from 63.4%.

The latest results include contributions from Intel's acquisitions of security-software provider McAfee and Infineon Technologies AG, which closed in the first quarter.
Write to Nathan Becker at nathan.becker@dowjones.com