Bloomberg News

Intel Gains After Forecast Tops Estimates on Laptop Demand

October 19, 2011

(Updates shares in sixth paragraph.)

Oct. 19 (Bloomberg) -- Intel Corp. shares rose in U.S. trading after the world’s biggest chipmaker forecast fourth- quarter sales that exceeded some analysts’ estimates, citing strong demand for laptop computers in emerging markets.

Revenue will climb to $14.7 billion, plus or minus $500 million, Intel said in a statement yesterday. That compares with $14.2 billion, the average of analysts’ projections compiled by Bloomberg. Fourth-quarter gross margin, the percentage of sales left after deducting production costs, will be about 65 percent.

Intel said sales of notebook computers are driving earnings, with unit growth at a percentage in the double digits. The outlook defied analysts’ predictions that consumers are turning away from laptops in favor of tablets and smartphones. Intel also may have benefited from a failure by rival Advanced Micro Devices Inc. to supply enough of its own new chips.

“Even though I’ve been a believer for some time, this was a pleasant surprise,” said Michael Shinnick, a portfolio manager at South Bend, Indiana-based Wasatch Advisors Inc., which owns Intel stock. “You have this huge demand for server chips as well as the leapfrogging that’s happening in the emerging markets, where they’re going from pencil and paper to computing.”

The company also boosted its stock-buyback program by $10 billion, bringing the total available for repurchases to $14.2 billion at the end of the third quarter.

More Affordable

Intel shares rose 3.6 percent to close at $24.24 in New York. The shares have gained 15 percent this year.

“The emerging markets, as the technology we sell becomes more affordable, are generating significant growth,” Intel Chief Financial Officer Stacy Smith said in an interview.

AMD, Intel’s main challenger in PC chips, last month said manufacturing glitches at a plant in Germany were hurting production of its processors for PCs and servers.

Intel’s third-quarter net income rose to $3.47 billion, or 65 cents a share, from $2.96 billion, or 52 cents, a year earlier, the Santa Clara, California-based company said. Analysts on average had estimated profit of 61 cents. Sales increased 28 percent to a record $14.2 billion, compared with an average prediction of $13.9 billion.

Intel’s chips are in more than 80 percent of the world’s PCs, though the company has failed to parlay that dominance into orders for mobile phones and tablet computers, where chips based on ARM Holdings Plc technology have the majority of the market.

Chief Executive Officer Paul Otellini said the company is still on course to have its chips appear in phones “from a variety of suppliers” in the first half of next year.

Consumer Demand

Yesterday’s report marked the 12th consecutive quarter Intel has posted higher sales than analysts had estimated, according to Bloomberg data, countering predictions that its dependence on personal computers would impede growth as more consumers opted for handheld devices like Apple Inc.’s iPad and iPhone.

Apple yesterday reported profit and sales that missed analysts’ expectations after selling fewer iPhones than predicted.

Gross margin, the only measure of profitability that Intel forecasts, was 63.4 percent in the third quarter. The company’s division that makes PC chips reported a 22 percent increase in sales to $9.4 billion. Revenue in its Data Center Group, which supplies server chips, climbed 15 percent to $2.5 billion.

PC Growth Estimate

The PC market will grow 4.2 percent to 361.6 million units this year as consumers buy fewer machines, according to market researcher IDC. In the same period, the smartphone market will jump 55 percent to 472 million units, making it bigger than PCs by that measure for the first time, IDC said.

Surging sales of smartphones and tablet computers are driving demand for the machines that provide them with data. Those servers are powered by Intel’s more expensive Xeon range of processors, helping buoy its profitability.

Still, Intel’s prediction of a fourth-quarter sales gain of about 3 percent from the preceding three months -- at the lower end of the average range of increases -- reflects concerns that consumers in Western Europe will continue to hold off on purchases, Intel’s Smith said yesterday. Consumer spending is usually concentrated in the fourth quarter during the end-of- year holiday shopping season, he said.

--With assistance from Dina Bass in Seattle. Editors: Jillian Ward, Marcus Chan

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles@bloomberg.net.


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