Intel beats estimates, upbeat on manufacturing shift

Revenue for the first quarter came to $9.4 billion, a 17 percent jump over the year-ago period, the chipmaker said on Tuesday. Net income came to $2.2 billion, or 34 cents a share, a 31 percent increase over the 26 cents a share recorded for the same period last year.

"As of today, worldwide demand seems pretty solid," Andy Bryant, Intel's chief financial officer, said in a conference call.

Though the first quarter of 2005 contained an extra week, which partially accounts for the rate of growth over last year, the numbers beat Wall Street expectations. Analysts had expected Intel to report $9.3 billion in revenue and 31 cents in earnings per share. In March, Intel narrowed its revenue guidance from between $8.9 billion and $9.4 billion to between $9.2 billion and $9.4 billion.

Revenue in the second quarter is expected to be between $8.6 billion and $9.2 billion.

The results may encourage investors. Last week, an earnings miss by IBM caused the stock market to drop.

On the move
The growth comes partly from a rise in sales of mobile components, which include notebook processors, Wi-Fi chips for notebooks and processors for handsets, Intel President Paul Otellini said. The bump in sales of handset processors follows Intel's long-term campaign to win contracts in this industry. The increase in Wi-Fi chip sales is the result of a bundling strategy Intel has pursued since 2002.

Now more than 80 percent of notebooks based on Intel's Pentium-M processor also come with Intel's Wi-Fi chip, said Mooly Eden, co-general manager of Intel's mobility division. That's a higher figure than when the Pentium M debuted.

Otellini added that mobile shipments helped make up a slight decline in desktop chip shipments. In desktops, however, Intel has begun to ship dual-core chips. Hundreds of thousands will be delivered this quarter, and the quarterly total will be in the millions in the future, he said.

Gross margins, or the amount of money left over after expenses, came to 59.3 percent, higher than the 57 percent expected. Gross margins typically increase when there is a shift to more-expensive parts. The company's gross margin estimate for the year was raised to 59 percent, up from an earlier estimate of 58 percent.

Intel also said it planned to increase capital spending for the year from between $4.9 billion and $5.3 billion to between $5.4 billion and $5.8 billion. The increased investment is "driven primarily by stronger-than-anticipated business and increased confidence in the company's 65-nanometer process technology ramp," the company said.

The 65-nanometer manufacturing process, which will be used to produce chips for sale later this year, will result in smaller, faster and ideally less expensive chips.

Accelerating a manufacturing transition can help a company gain market share. In Intel's case, the company will probably not move the date forward when these chips are released. Instead, increasing investments may allow it to produce large volumes of these chips faster than earlier expected.

"It is more a matter of what we can do in 2006," Bryant said. "I feel more confident in getting four factories to ramp."

However, unanticipated problems and other factors can neutralize a manufacturing advantage.