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Intel says sales to beat expectations again
By Duncan Martell
SAN FRANCISCO, Nov 10 (Reuters) - Intel Corp. said on Tuesday its sales would beat expectations again in the latest quarter, showing there is still plenty of room for growth for the world's largest maker of computer chips.
Intel , which has 80 percent of the market for the chips that are the brains of personal computers, said fourth quarter revenues would be 8 percent to 10 percent higher than the third quarter's $6.7 billion. It would mark the second quarter in a row that Intel has said results will beat Wall Street forecasts.
The company is having considerable success, analysts said, with its Celeron chip designed for low-cost PCs as well as with its Xeon chip, designed for heavy-duty computing. It is also riding a rebound in demand from the first half, when a glut of PCs hurt computer makers and chipmakers alike.
"I'm pretty impressed," said Richard Slinn, a money manager at San Francisco-based Levensohn Capital Management. "Not only is there pretty strong demand, there's also not a lot of inventory stuck in distribution channels."
Intel said its gross margin, or percentage of revenue minus product costs, will surge two percentage points above the 53 percent in the prior quarter.
The company was expected to earn 95 cents a share, according to First Call Corp., which tracks analyst forecasts. In the year-ago fourth quarter, Intel had net income of $1.7 billion, or 98 cents a share, on revenue of $6.5 billion.
Ashok Kumar, analyst at Piper Jaffray Inc., said he now expected Intel to have fourth-quarter revenue of $7.5 billion, up 11 percent from the third quarter and 15 percent from a year-ago. He said he expected per-share earnings of $1.05.
The increase in revenue, an Intel spokesman said, was due principally to demand for more of Intel's products and chips, rather than its ability to sell more higher-priced ones.
"This is all unit driven, meaning Intel is not getting more money for each chip," Kumar said. "Average selling prices aren't increasing; the bright side is they're not decreasing."
The industry is gearing up for the holiday shopping season -- its strongest period of the year -- and companies are snapping up new models that just came out in August. Moreover, contrary to popular opinion, there is good growth for PCs that have faster chips, more memory and better performance.
"Demand for PCs above the $1,000 level is pretty strong," Slinn said. "Customers aren't just buying the cheapest of the cheap."
Intel's news follows bullish comments made by Paul Otellini, head of Intel's business architecture group, during a speech at Oracle Corp.'s OpenWorld conference here.
He said demand was strong for the Celeron chip and that Intel expected to double unit shipments of the Celeron chip in the fourth quarter from the third.
That would be up from the 3 million to 4 million Celeron chips Intel shipped in the third quarter, estimated Bill Milton, an analyst at Brown Brothers Harriman & Co.
Otellini's speech also underscored Intel's aggressive push to sell more of its top-of-the-line Xeon chips into the high-end computing market, where Xeon sales are growing 1.5 times faster than those of non-Intel architecture-based chips.
Those processors, which now run as fast as 450 megahertz and are expected to reach speeds of more than 600 megahertz by the second half of next year, are the brains of powerful server computers that run corporate networks.
"The company seems to be having more success with the Xeon products than they originally anticipated," said Nathan Brookwood of market research firm Insight 64.
In an interview following his speech, Otellini said Santa Clara, Calif.-based Intel was no longer having trouble meeting demand for Xeon, as it was in the third quarter.
"How many thousands would you like to buy?" Otellini said.
Intel also reported stronger-than-expected earnings for the third quarter, citing growth in nearly all its product lines and strong seasonal demand for PCs.
The same appears to be happening this quarter.
"Japan is kind of picking up," Otellini said. "We're getting some sequential growth again, which feels good."
Japan is mired in its first recession in years, and PC growth there has slowed precipitously. Asia, including Japan, accounts for about 25 percent of the world's PC sales.
"Unit shipments to China and India are holding at their current growth level," Otellini said.
"We're on track to have a very robust fourth quarter, especially in the consumer market," Kevin Hause, an analyst with market research firm International Data Corp., said.
In after-hours trading, Intel stock was up $1.81 after gaining $1.56 to close at $97.56 on the Nasdaq during regular hours. Intel disclosed the news after the close of trading.
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