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Intel's quarter tops expectations

Record processor shipments boost revenue and profit for the leading chipmaker. Still, Intel isn't seeing many signs of increases in corporate PC buying in the United States.

John G. Spooner Staff Writer, CNET News.com
John Spooner
covers the PC market, chips and automotive technology.
John G. Spooner
4 min read
Intel reported third-quarter profits Tuesday that exceeded analyst expectations, as revenue jumped 20 percent on strong demand for computer processors.

The company posted a profit of $1.7 billion, or 25 cents per share, for the quarter. Revenue for the period, which ended Sept. 27, was $7.8 billion. Analysts expected the Santa Clara, Calif., chipmaker to report a profit of 23 cents a share on revenue of about $7.7 billion, according to a survey by earnings tracking firm First Call.

During the same period one year ago, Intel reported a profit of $686 million, or 10 cents per share, on revenue of $6.5 billion.


What's new:
Intel reports per-share earnings that are 2 cents above analysts' expectations and more than double last year's results.

Bottom line:
Intel's results are considered a barometer of the health of the industry. It remains to be seen, however, whether the company's performance reflects improved conditions across the sector.

For more info:
Intel in the news

Intel twice raised its earnings guidance during the quarter, citing better-than-expected sales of PC processors and related products. The analyst expectations reflected the midpoint of Intel's second set of revenue guidance, which pegged revenue at between $7.6 billion and $7.8 billion. Intel made the forecast Sept. 4.

The strong results were fueled by the Intel Architecture Group, which produces PC processors and related products. The group set records for unit shipments of processors, chipsets and motherboards during the quarter, Intel said.

"Intel had an excellent growth quarter, driven by strength in the Intel Architecture business, across all geographies, channels and product lines," Paul Otellini, Intel's president, said during a conference call to discuss the earnings announcement.

Notebook processors, which typically cost more than desktop chips, helped boost the company as well. Intel's notebook processor shipments jumped 30 percent year over year during the quarter, Otellini said.

Despite record sales in processors and chipsets driven by higher sales to consumers in the United States and increases across the board in Europe, Asia and the Middle East, Intel hasn't seen many signs of increases in PC buying from companies in the United States.

"Even with record unit volumes, we've seen only modest growth in PCs in the U.S. corporate segments," Otellini said.

Optimism for the fourth quarter
Intel hasn't seen much in the way of increases in business sales, but it believes that higher sales to other categories will help it turn in a good fourth-quarter performance.

Intel forecast that its fourth-quarter revenue will come in between $8.1 billion and $8.7 billion. Gross margins will also improve to about 60 percent, from 58.2 percent in the third quarter, the company said.

If Intel hits the midpoint of its revenue forecast, $8.4 billion, it will arrive at a sequential revenue increase of 7 percent, consistent with seasonal patterns seen over the previous five years, during which average revenue growth has been 8 percent, said Andy Bryant, Intel's CFO.

Not everything is rosy for Intel, however.

The chipmaker's Wireless Communications and Computing Group and Intel Communications Group, which build chips such as flash memory for cellular phones and also chips for networking gear, both posted losses for the quarter. The two business units have now posted losses for the first nine months of 2003.

Meanwhile, the arrival of Intel's next generation of Pentium processors in PCs is up in the air and could come later than the fourth-quarter debut that was expected. The new chips are unlikely to be available in large numbers of computers until January or February, due in part to last-minute changes made by Intel, several analysts said this week.

Otellini reiterated Intel's earlier statements that the chips--Prescott, Intel's next-generation desktop Pentium, and Dothan, its next notebook chip--will start shipping on a new 90-nanometer manufacturing process by the end of the year.

Prescott's potential
But he said that Intel had made changes to the Prescott processor to increase its potential clock speed.

"The (90-nanometer) process is very healthy. We ended up changing the thermal target for systems for Prescott as we got silicon out and ran it against our models and what we think the likely speeds are going to be on that product," Otellini said.

The tests led to a slight change, which he said increases the chip's clock-speed potential in the future.

"The need to compete with a resurgent (Advanced Micro Devices) may have led Intel to rework the Prescott die...to scale to higher frequencies at launch. While many expected Prescott to launch at 3.4GHz, it's possible that Intel ran into speed problems or wanted to reach 3.6GHz at launch," Ashok Kumar, an analyst with U.S. Bancorp Piper Jaffray, wrote in an Oct. 13 report.

Otellini did not say if the change would affect when Prescott will arrive in PCs. Indeed, Prescott and Dothan will ship on time by Intel's definition if they begin leaving the company's factories bound for PC makers by Dec. 31. But they may not appear in PCs in that same timeframe, analysts said.

"We now expect a Prescott launch in January or February 2004," Quinn Bolton, an analyst with Oppenheimer, wrote in a report released on Monday. "With Intel?s new high-end desktop processor delayed, we believe consumers will be forced to purchase the more mature Northwood Pentium 4 processor?delay purchases until Prescott becomes available or switch to systems based on AMD?s Athlon64 processor."

Intel does have a new Pentium 4 waiting in the wings, however. In November the company will release its 3.2GHz Pentium 4 Extreme Edition, a chip that includes an extra 2MB of cache to increase performance for top-of-the-line desktop PCs.

The chip, which could serve as a placeholder until Prescott chips arrive, will be available in desktops starting as early as Nov. 3, a source familiar with Intel's plans said.