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Intel profit rises on notebook demand

Chips for portable PCs help boost Intel's earnings to nearly $2 billion for the third quarter.

Intel on Tuesday reported that its third-quarter earnings rose 5 percent, less than analysts' expectations, as revenue from processors reached an all-time high of $7.26 billion.

Net earnings for the period were just under $2 billion, or 32 cents per share, on overall revenue of $9.96 billion. That compares with earnings of $1.91 billion, or 30 cents per share, on revenue of $8.47 billion in the same period in 2004.

Analysts expected Intel to earn 33 cents per share, according to a survey by Thomson First Call.

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Intel CEO Paul Otellini touted the corporation's strong Q3 showing in today's earnings webcast. Intel had record earnings just under $10 billion.
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Third-quarter net income and earnings per share were influenced by Intel's $300 million patent infringement settlement with MicroUnity. Intel said it will charge $140 million now and amortize the remaining $160 million over the next 10 years.

An increase in taxes of approximately $250 million, equivalent to 4 cents per share, related to the decision to repatriate foreign-earned income under the American Jobs Creation Act (Jobs Act), also bit into Intel's earnings per share, the company said.

The third-quarter numbers are still in line with Intel's earlier estimates. During its midquarter update, the chipmaking giant said it expected its revenue for July, August and September to be in the range of $9.8 billion to $10 billion.

At the close of regular trading, Intel shares were up 1.11 percent or 26 cents to $23.72. The earnings report was issued after the close of regular trading.

Paul Otellini
CEO, Intel

Intel Chief Financial Officer Andy Bryant said the company faced a third-quarter inventory buildup that it expects to sell off in the fourth quarter in anticipation of next year's dual-core processor designs.

Intel expects to see its first batch of dual-core mobile processors code-named Yonah later this year, Otellini said. Intel said it will release versions of the low-power processor after the dual-core Yonah launch in January 2006. The chip is expected to power its Viiv-branded consumer electronics devices such as digital video recorders, as well as Centrino-branded notebooks.

Intel CEO Paul Otellini pointed to a boost from processors that power notebooks and highlighted the launch of the company's new dual-core Xeon processors ahead of schedule and the first shipment of chips built on its 65-nanometer process technology.

"The combination of our 65nm manufacturing network, broad range of new dual-core processors and unique ability to provide platform solutions positions us well for continued growth," Otellini said in a statement.

Notebooks have become a significant profit center for Intel. In the first quarter of this year, notebook chips accounted for 30 percent of Intel's output. That figure is expected to rise to about 33 percent next year, Intel has said.

Two analyst firms on Monday increased their forecasts for the PC and server market for the next three months, which bodes well for Intel. IDC boosted its annual forecast for shipment growth to 17.1 percent, well over the 13.3 percent growth rate the research firm predicted in August.

Research firm Gartner, meanwhile, expects shipments to grow at 17.2 percent for the year. Roughly 200 million desktops, notebooks and x86 servers will leave factories this year, according to Gartner.

Earlier this week, Intel demonstrated a new technology, called Robson, designed to reduce the time it takes to boot up a PC or a laptop.

For its fourth quarter, Intel said it expects revenue to be between $10.2 billion and $10.8 billion. Gross margin percentage for the next three months is expected to be approximately 63 percent, plus or minus a couple of points, as compared with 59.7 percent in the third quarter.

Intel said it will spend $3 billion on R&D and acquisitions in its upcoming quarter--more than the $2.8 billion it spent this quarter--in preparation for the holiday season.

R&D spending for 2005 is expected to remain at $5.2 billion, with capital spending at about $5.9 billion, plus or minus $200 million, Intel said.