San Francisco: The world’s biggest chip maker, Intel Corp., has forecast rising sales this quarter and record profit margins for the year, signalling a rebound in technology spending after revenue rose 44% in the first three months.
Second quarter revenue will climb as high as $10.6 billion, (Rs47,276 crore) exceeding analysts’ predictions, and 2010 gross margins will widen to a record, Intel said on Tuesday. Net income surged almost fourfold in the three months through March.
Consumers served as a big driver of computer demand and corporate executives, more confident about their prospects, are replacing ageing machinery, Intel chief executive officer Paul Otellini said. The report signalled that the economic recovery is taking hold, lifting Intel and companies such as Microsoft Corp. and Texas Instruments Inc. in extended trading.
“We’re talking about the best quarter in company history and the economy has not normalized,” said Patrick Becker Jr., chief investment officer at Becker Capital Management in Portland, Oregon, who owns Intel stock as part of $2.3 billion he has under management. These are not peak earnings.
In the current quarter, sales will be $10.2 billion, plus or minus $400 million, Santa Clara, California-based Intel said. Analysts had estimated $9.72 billion on average, according to a Bloomberg survey. Full-year gross margin, or the percentage of sales remaining after deducting costs of production, will be about 64%, compared with an earlier prediction of 61%, the company said.
Increasing sales: Paul Otellini, chief executive officer of Intel Corp., is optimistic about the firm’s business prospects for 2010 and beyond. Daniel Acker/Bloomberg
“We are optimistic about the prospects of our business for 2010 and beyond,” Otellini told analysts on a conference call. The company, whose processors power more than 80% of the world’s personal computers, saw orders of chips used in corporate computers begin to increase for the first time since the recession, he said.
Intel’s dominance in the chip industry makes it a bellwether for computer demand. Its report also kicks off earnings season for the major technology companies: Google Inc. gives its results on 15 April, International Business Machines Corp. reports on 19 April, and Microsoft delivers earnings on 22 April.
While Intel’s fourth quarter results also beat analysts’ predictions, they didn’t boost the share price.
The stock declined about 9% that earnings season, dragged down by concern chip orders were being driven by customers building up inventory, rather than real demand.
In the first quarter, demand for chips used in laptop computers and new data centres that provide computer services over the Internet boosted sales and profit. That will continue to drive revenue, helped by sales in developing markets, according to chief financial officer Stacy Smith.
Intel shows that spending dollars keep going towards technology, Doug Freedman, an analyst at Broadpoint AmTech Inc. in San Francisco, said on Bloomberg Television.
First quarter net income climbed to $2.44 billion, or 43 cents a share, from $629 million, or 11 cents, a year earlier. Analysts projected 38 cents a share.
Revenue increased 44% to $10.3 billion, compared with the average estimate of $9.85 billion.
Customers aren’t building up excess stockpiles of chips, a sign the industry isn’t at risk of a supply glut, Smith said.
“When we look through the supply chain, what we see are healthy and appropriate inventory levels relative to how we see demand,” he said in an interview. “It was an incredible first quarter for us.”
Joseph Galante contributed to this story.