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Intel stands by revenue expectations

The chipmaker expects second-quarter revenue between $6.6 billion and $6.8 billion, signaling good prospects on the PC side, but its communications business remains soft.

Intel expects its second-quarter revenue to come in between $6.6 billion and $6.8 billion, a sign that its prospects in the PC market are good, though the company says its communications business remains soft.

The Santa Clara, Calif.-based chipmaker narrowed, but essentially reaffirmed, its previous sales outlook for the second quarter, which ends on June 28, as part of a midquarter progress update on Thursday afternoon.

As part of the company's , Intel Chief Financial Officer Andy Bryant said second-quarter revenue will fall between $6.4 billion and $7 billion. Generally, analysts take the midpoint of the revenue range--$6.7 billion in this case--as the de facto revenue estimate for the quarter.

The midpoint of the revenue range listed under the new guidance is $6.7 billion, the same as the earlier figure. It also represents a 6 percent increase over the same period a year ago, when Intel reported a revenue of $6.3 billion and said it would cut 4,000 jobs.

Intel's reaffirmation of its previous outlook will most likely be seen as a positive sign by financial analysts. Some analysts predicted that Intel would lower the midpoint, due to a decline in PC sales caused in part by the outbreak of the severe acute respiratory syndrome (SARS) virus.

But Bryant told analysts that so far in the quarter, sales have been running at the high end of normal seasonal patterns for PC processors, boosting Intel's prospects for a solid quarter, even though demand for communications and wireless chips remains soft.

"There have been no surprises in this quarter," he said during a conference call with analysts. "Everything has unfolded pretty much as we expected it to...We're not seeing abnormal business activity. We're not seeing signs of a problem."

Still, some analysts have cautioned that Intel's revenue projections could be benefiting from a shoring up of inventory by SARS-panicked customers, with a possible sales dropoff yet to come.

Bryant said that, if there's extra inventory, it's not sitting around at Intel, which plans to cut its own level of goods this quarter. "It's real hard to hide real assets. In our case, if we had it, you'd see it in finished goods," he said.

With several quarters coming in at the top of its traditional seasonal ranges, Intel appears to be seeing progress in the PC processor market. The PC market has begun to experience discernible--albeit slight--growth in 2003. Computer shipments grew between 2 percent and 5.5 percent in the first quarter, according to statistics from IDC and Gartner, a notch ahead of expectations.

Garter predicted that, in the second quarter, PC shipments would increase by 6.4 percent, although the firm bumped down its prediction for the year as a whole. Now, Gartner expects 136.9 million PCs to leave factories this year, a 6.6 increase from 2002 but down from its earlier estimate of 138.7 million units, which would have been a 7.9 percent increase.

Also in its favor, Intel during the first quarter took market share away from rival Advanced Micro Devices in PC processors.

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Intel's market share increased to 81.7 percent, an increase of nine-tenths of a point from the year-earlier period, according to Mercury Research. Still, AMD's inventory woes are clearing up, which will make it more difficult to continue to grab share.

Finally, the company has also managed to open a slight performance gap over AMD, according to various benchmarking sites, because of a new series of chipsets and processors launched in the second quarter.

But not everything is rosy in Santa Clara. While PC processors are seemingly back on track, Intel's wireless group, which includes the flash memory business and its communications efforts, continue to suffer.

Flash memory sales dipped in the first quarter, after Intel raised prices by up to 40 percent on some chips due to a projected acceleration in demand. Demand for flash memory did accelerate, but competitors did not follow suit on Intel's price increases and were able to snatch away sales.

Intel executives later acknowledged that the price increase was a misstep, but the company has not yet changed course.