Intel beats 3Q expectations, sees 4 to 8 pct growth in 4Q

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Updated 6:30 p.m. EST

Intel (Nasdaq: INTC) topped analysts' downwardly revised estimates and edged past its own lowered revenue expectation in the third quarter, and predicted fourth quarter sales would rise 4 to 8 percent sequentially.

After market close Tuesday, the world's largest maker of PC processors reported third quarter net income of $2.9 billion, or 41 cents per share, excluding special charges. First Call's latest survey of 24 analysts predicted a profit of 38 cents per share for the quarter ended Sept. 30.

Higher-than-expected investment gains of $966 million helped Intel top estimates. The company previously anticipated $900 million in investment income.

Including $428 million in acquisition-related expenses, Intel earned $2.5 billion, or 36 cents per share.

Shares of Intel traded at 36.875 in afterhours activity on the Island electronic communications network, immediately following the release of quarterly results. Intel stock closed Tuesday's regular trading at 36.1875, up 0.5 for the session.

Also Tuesday, Intel said it sees fourth quarter revenue rising between 4 and 8 percent from the third quarter. Fourth quarter gross margin is expected to be 63 percent, down from the third quarter's 64 percent, as Intel shifts more fabs to manufacturing at 0.18 micron sizes.

Non-operating income in the fourth quarter should be about $950 million, said the company, which also anticipates $440 million in fourth quarter amortization expenses.

Third quarter revenue of $8.7 billion was slightly ahead of the $8.5 billion predicted by Intel in a warning last month, when the company blamed disappointing PC sales in Europe for hurting revenue. Company executives on Tuesday again cited European problems.

However, Intel's revenue disappointment was more a matter of failing to meet unusually high expectations rather than simply a poor performance, CFO Andy Bryant said, during a conference call with analysts.

"We forecasted we would have a phenomenal Q3 and instead we got a normal one," Bryant said. "It just stopped dead in its tracks.... Think of it as being a little down, and us having a very aggressive and bullish forecast."

Microprocessor shipments were flat sequentially, Intel said. The average selling price of PC processors was about the same as the second quarter, the company said.

Chipset shipments and revenue rose, as the company filled channel inventory and regained some market share, said Paul Otellini, executive vice president and general manager of the Intel Architecture Group.

Intel spent $1 billion to buy back 14.3 million shares during the third quarter.

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