Intel sees upside in PC market

Shares of Intel jumped higher today after the company said yesterday that revenues for its third calendar quarter will be 8 to 10 percent stronger than expected due to stronger demand in North America and Europe, although the effect of this strength on overall earnings has not been revealed.

Intel stock was up 4.11 percent, or 3.25 points, to 82.31 and has traded as high as 99.25 and as low as 65.63 during the past 52 weeks.

The company's statement on its third quarter mirrors comments made by analysts last week that the PC industry in general, and Intel in particular, is experiencing a modest surge in demand despite a worldwide economic crisis. Current circumstances make it difficult to make long-range predictions, analysts said, but the second half of the year at least looks stronger than the first. (See related story)

One factor substantially contributing to the surge is the evaporation of a desktop systems glut, which slowed sales and prompted price cuts during the first half of the year.

Earlier, Intel predicted that revenues would come in roughly flat with second-quarter revenues of $5.9 billion. Stronger-than-expected demand, however, will likely boost that figure to between $6.3 billion and $6.5 billion during the third quarter. Some of the company's expenses also rose during the quarter, Intel said, but overall gross margins are expected to rise a couple of points from the second-quarter figure of 49 percent.

The company also said that second-half revenues would be stronger than first-half revenues.

Intel did not provide comments on projected earnings for the quarter. Some analysts, however, recently upgraded their estimates on the company due to the increase in demand. Mark Edelstone of Morgan Stanley Dean Witter, for example, raised its third-quarter estimates from 73 cents a share to 79 cents a share, while Ashok Kumar of Piper Jaffray raised his estimate to 80 cents a share.

While the uptick in demand likely will be seen as positive, Intel is not growing as fast as it has in the past and appears to be in a position where it has to sell more processors for less money.

During the third quarter last year, Intel pulled in $6.2 billion in revenue, slightly less than what is expected for the most recent quarter, but posted earnings of 88 cents per share, a figure that is 10 percent or more higher than estimates this time around. The 1997 revenue and earnings figures were approximately 19 percent higher than the figures posted for the third quarter of 1996.

A full copy of Intel's statement on its third quarter can be found at the company's Web site.

The company will hold its third-quarter conference call on October 13.

Gruntal & Company today said it raised its 1998 earnings per share estimate for Intel to $3.09 from $3.03. Analyst Mona Eraiba said Intel's share price target was set at $105.

Another investment banking firm, Warburg Dillon Read, today said that it raised its rating on Intel to buy from hold. Merrill Lynch kept its intermediate and long-term ratings on Intel at neutral, Reuters reported.

Warburg says it is still not convinced that Intel has returned to long-term growth track, but believes stronger-than-expected third quarter sales should give near-term boost, Reuters reported.

Intel is an investor in CNET: The Computer Network.