Intel forecast hints at market recovery

Intel, the world's biggest computer chipmaker, forecast sales and profitability that topped estimates, indicating that computer demand is returning to pre-recession levels.

For the fourth quarter, Intel forecast sales of US$9.7 billion ($13 billion) to US$10.5 billion, compared with the US$9.5 billion average estimate in a Bloomberg survey. Third-quarter net income fell to US$1.86 billion, or 33 cents a share, Intel said. Revenue fell 8.1 per cent to US$9.39 billion.

Yesterday's numbers were all the more impressive because Intel raised its outlook two months ago, said Patrick Wang, an analyst at Wedbush Morgan Securities in New York.

Chief executive officer Paul Otellini expects the PC industry to grow this year, defying analysts' predictions.

"They had a phenomenal quarter once again," said Wang, who expects the shares to outperform their peers. "They beat expectations on revenue and from a gross-margin standpoint."

Intel rose as much as US$1.41 to US$21.90 in trading. The shares, up 40 per cent this year, closed at US$20.49 on the Nasdaq Stock Market.

Net income was down 7.8 per cent from US$2.01 billion in the year-earlier period. In August, Intel said that third-quarter sales would be as much as US$9.2 billion, compared with an August prediction of up to US$8.9 billion.

Gross margin, the percentage of sales remaining after the costs of production, was 58 per cent in the third quarter. That compared with Intel's prediction of about 53 per cent.

This quarter, the margin will widen to 62 per cent, give or take 3 percentage points, the company said.

The top end of that range, 65 per cent, would be Intel's highest level of profitability this decade. The previous peak was 63.9 per cent in the fourth quarter of 2000.

Intel's report kicked off two weeks of earnings by big US technology companies, including International Business Machines, Google and Microsoft.

The use of Intel's chips in everything from laptops to supercomputers makes its sales a barometer of industry demand.

Microsoft is introducing a new Windows operating system this month - an event that typically triggers a surge in PC orders.

The question now is how long that boost will last. Orders for PC parts are ebbing, indicating that Intel's sales may slow again, said Daniel Berenbaum, an analyst at Auriga USA in New York.

- BLOOMBERG