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Intel reports profit gain, beats expectations

Intel earnings exceed expectations but the company reports a modest quarterly profit gain.

Intel's second-quarter earnings exceeded expectations on the back of strong server and data center sales, though the gain in profit was modest.

The chipmaker today reported a second-quarter profit of $2.95 billion, or 54 cents a share, beating last year's profit of $2.89 billion, or 51 cents a share. A gain of only 2 percent.

Data center group revenue was strong and demand for servers was similarly strong, said Chief Executive Paul Otellini. The company is staking a large part of future growth on supplying hardware to power the cloud. Smartphones, tablets, and laptops all access sprawling server farms--a major component of the cloud--that are powered by Intel processors.

Revenue was $13 billion, up 22 percent from $10.8 billion in the year-earlier period. This beat expectations. Financial analysts had forecast revenue to increase to $12.84 billion.

In the current quarter, revenue of $14.1 billion is expected, plus or minus $500 million.

"Strong corporate demand for our most advanced technology, the surge of mobile devices and Internet traffic fueling data center growth and the rapid rise of computing in emerging markets drove record results," Otellini said in a statement.

In the earnings conference call, two themes repeated a number of times by executives were Sandy Bridge and Ultrabooks. Intel's Sandy Bridge chip--used in the MacBook Pro and MacBook Air lines, for example--is the fastest ramping product in the company's history. The Ultrabook, on the other hand, is an emerging laptop category distinguished by thinness and tablet-like features such as instant-on and instant connectivity to the Web.

Ultrabook laptops are expected in the coming months and years. Otellini compared the Ultrabook strategy to its successful Centrino strategy, which put Wi-Fi in virtually every laptop and drove huge sales growth.

Otellini was also asked about Windows 8 and the threat that operating system poses, since the OS will run on competing ARM processors that power most of the world's smartphones and tablets. "We will out-perform and out-compatibility" ARM on Windows 8, Otellini said, referring to the expectation that Windows 8 running on Intel processors should offer better compatibility with older software and devices.

Earnings highlights:

  • Only 8 to 10 percent growth in PC shipments this year, down from an earlier double-digit view.
  • PC Client Group revenue up 11 percent year over year.
  • Data Center Group revenue up 15 percent year over year.
  • Intel Atom microprocessor and chipset revenue of $352 million, down 15 percent year over year.
  • Other Intel architecture group revenue up 84 percent year over year.
  • Embedded & Communications Group revenue up 25 percent year over year.
  • Platform average selling price (ASP) was flat sequentially and up year over year.
  • Gross margin was 61 percent, consistent with the company's expectation.
  • McAfee and Infineon Wireless Solutions contributed revenue of $1.0 billion.

Update, 4:10 p.m. PT: Added earnings conference call discussion.