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Intel earnings higher than expected

Chipmaker reports record sales of server and notebook processors, but net income dips.

Intel reported record sales of server and notebook processors and other PC parts to deliver higher-than-expected fourth-quarter earnings Tuesday.

The chipmaker, which upped its own estimate for the fourth quarter in December, posted a profit of $2.12 billion, or 33 cents a share, for the quarter ending Dec. 25. That's down 2 percent from the $2.17 billion in net income it reported a year earlier.

Revenue for the quarter was $9.6 billion, up about 10 percent from $8.7 billion a year ago.

"In the fourth quarter, what we think we saw was good, solid growth," Intel Chief Financial Officer Andy Bryant said in a conference call.

For the year, Intel earned $7.5 billion on sales of $34.2 billion, compared with earnings of $5.6 billion on sales of $30.1 billion in the same period in 2003.

Using Intel's own prediction as a yardstick, analysts had on average expected the company to earn a profit of 31 cents a share on revenue of $9.4 billion for the fourth quarter, a survey by tracking firm Thomson First Call showed. Intel said in December that it expected to earn between $9.3 billion and $9.5 billion, setting the midpoint of the range--a figure typically used by analysts to set estimates--at $9.4 billion.

The chipmaker's Intel Architecture Business Group--which includes PC processors, chipsets and motherboards--was again Intel's main engine for revenue growth. The group saw record unit shipments of products including mobile processors, motherboards and chipsets, while the average selling price for its PC processors remained stable.

Although Intel's Communication Group posted an operating loss for the quarter, its flash memory and Wi-Fi module shipments fared well. Intel said it saw higher flash memory unit shipments during the quarter, while its Wi-Fi module unit shipments produced a company record.

"We ended 2004 with record revenues and robust demand for Intel architecture products across all geographies and channels," Craig Barrett, Intel's CEO, said in a statement.

Late Monday, Intel's cross-town rival, Advanced Micro Devices, blamed a competitive flash memory market for a fourth-quarter earnings warning. AMD reports its results Jan. 18.

Looking ahead, Intel forecasts that its first-quarter 2005 revenue will equal between $8.8 billion and $9.4 billion, the midpoint of which, $9.1 billion, equals a decline of about 5 percent. Processor sales typically drop from the fourth quarter to the first quarter, in part because consumers take a breather after the holidays.

The company also has bigger plans for research and development and capital expenditures in 2005. It will spend about $5.2 billion on research and development in 2005, compared with $4.8 billion in 2004. Intel expects its capital spending for 2005 to measure between $4.9 billion and $5.3 billion vs. the $3.8 billion it spent in 2004. The capital spending increase will come in part from new chipmaking equipment, which Intel will use to turn out its next generation of 65-nanometer chips.

Intel President Paul Otellini said that the growth in chip sales in the fourth quarter and 2004 was a worldwide phenomenon. Processor shipments to the Asia-Pacific region grew 27 percent year to year, with shipments to China and India growing, respectively, 26 percent and 45 percent annually. Latin American shipments hit a record.

In developed markets, U.S. shipments grew by 14 percent from the third quarter, when Intel saw better-than-normal notebook chip shipments. European and Middle East shipments shot up by 21 percent sequentially. Shipments to Japan set new records in 2004 and in the fourth quarter.

"Christmas was very good across the globe," said Otellini, who added that both consumer and business markets grew.

CNET News.com's Michael Kanellos contributed to this report.