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Intel ups third-quarter expectations

Citing better-than-expected PC chip sales, the company now says it will turn in revenue of between $7.3 billion and $7.8 billion for the quarter.

Intel on Friday raised its financial outlook for the third quarter, citing better-than-expected PC chip sales.

The chipmaker said it would turn in revenue of between $7.3 billion and $7.8 billion for the quarter, above its previous expectation of $6.9 billion to $7.5 billion.

The update moves the midpoint of Intel's revenue guidance for the quarter, a figure analysts generally use as a de facto revenue estimate, from $7.2 billion to between $7.5 billion and $7.6 billion, an increase of $300 million to $400 million.

The company said in a statement that its Intel Architecture business, which includes PC processors, chipsets and related components for building PCs, is trending toward higher sales worldwide. That line of business accounts for the majority of Intel's revenue. Meanwhile, the company said demand for its communications products, which include technology such as flash memory, remains soft.

If Intel's third-quarter revenue comes in at $7.6 billion, the company will post a 14 percent year-over-year increase from its revenue of $6.5 billion in the third quarter of 2002 and an 11 percent increase from the second quarter's $6.8 billion.

A $7.6 billion third quarter would be unusual but not outside the high-end of trends seen during the past 10 years, Intel said. It saw revenue of $8.7 billion during the third quarter of 2000, for example. But the company's five-year, third-quarter revenue average is $7.1 billion.

Though Intel has seen better-than-expected PC chip sales so far this year, company executives have been reluctant to proclaim that a PC recovery is under way. As a result, the company is likely to downplay any signs of a major PC market recovery that's suggested by the increased third-quarter estimate.

"We'll probably be the last to call a recovery," said Andy Bryant, Intel's CFO, during a conference call to discuss the announcement. "We'll probably be the last to say (a recovery has begun), after everyone has already written about it."

The increase in shipments comes from higher-than-expected unit sales across Intel's line of PC components for desktops and notebooks and across all geographies and sales channels during July and the first part of August. But time will tell if the increase was sparked by higher PC sales or by computer manufacturers that build inventories of parts, Bryant said.

"I don't think it was inventory build," Bryant said. "It appears to be selling through (to customers)."

Intel will hold its regular midquarter update Sept. 4. Bryant indicated that the company might offer more details on the quarter at that time. He declined to discuss product mixes or average selling prices.

Although Intel is adopting a wait-and-see attitude about the rest of the third quarter and offered no additional guidance on the fourth quarter, Bryant did say the company has seen some shortages of its PC parts during the first half of the quarter.

"What you tend to have happen is a few parts get tight, and you end up having some allocation," he said.

But Intel is unlikely to run out of manufacturing capacity, he said, with new manufacturing methods and gear, including 90-nanometer processors and 300mm wafers, on track to begin production later this year.

"I'm really not worried (that) capacity is a great limiter. I'd really love to have to face that problem," he said.

Intel also said its gross margin is expected to be 56 percent, plus or minus a couple of points, versus its previous expectation of 54 percent, plus or minus a couple of points.

All other expectations for the quarter, which ends Sept. 27, are unchanged, Intel said.