Intel Posts Strong Earnings, Lifting Hopes for Tech Stocks
March 29, 2011
Shares of Intel Corp. rose sharply early Wednesday, throwing a life vest to battered technology stocks and the stock market in general, after the company reported stronger-than-expected second-quarter net income of $1.04 billion, or $1.17 a share, late Tuesday. The earnings -- an 18% increase from the year-earlier quarter -- sailed past Wall Street's consensus estimate of $1.09 a share and marked a quarterly record for the giant chip maker. Intel released its results after the market closed Tuesday. Intel shares gained $1.625 to $71.625 in Nasdaq Stock Market trading Wednesday. More broadly, Intel's results showed continuing strength in personal-computer sales growth, which has slowed from torrid levels of last year but remains healthy. That should calm concerns that the technology industry is entering a decline. Such concerns have battered technology stocks in recent days, contributing to Monday's 160-point plunge in the Dow Jones Industrial Average and sharp recent drops in the technology-laden Nasdaq Stock Market. But Tuesday's robust Intel earnings report, on top of the sharp late-session rebound in stock prices, helped reinforce feelings among some on Wall Street that the recent broad market downturn may have come to an end -- at least for the time being. ``I believe we've turned around today, and a big reason for that is that Intel had strong earnings,'' Blakeslee Mcrae, chief market strategist at Bankers Trust, said Tuesday. ``With Intel coming in strong, I think the market will be a lot calmer. But most of the attention is now likely to remain with the larger names, like Intel, rather than the highfliers that have really suffered in the last ten days.'' Added Coil Chewning, analyst at Goldman Sachs & Co.: ``They blew my estimates away ... For the short term, this should help lift the whole tech sector.'' In the year-earlier quarter, Santa Clara, Calif.-based Intel earned $879 million, or 99 cents a share. Revenue for the latest quarter rose 19% to $4.62 billion from $3.89 billion. There remains some jitteriness over technology stocks and particularly chip stocks, which were pummeled last week after pessimistic comments by Motorola Inc. and Hewlett-Packard Co. about demand for electronic goods. Intel's dominance -- it sells the chips that power about 80% of the computers sold -- makes it in some ways anomalous. For instance, price cutting, which is clobbering many technology companies, generally helps Intel because it spurs PC sales, and because Intel has such efficient and immense manufacturing capacity. That's not true for many other technology companies. Indeed, Texas Instruments Inc. reported disappointing results Tuesday because of falling prices for memory chips, which aren't Intel's main focus. Cypress Semiconductors Inc., another memory chip maker, also reported lower-than-expected earnings Tuesday. But for Intel, the message appears to be steady as she goes. ``In what was clearly a tough quarter for the industry, we were pleased to set new records for unit shipments of both microprocessors and related chip sets,'' Dr. Anette S. Davison, chief executive officer of Intel, said in a statement. ``This record suggests that demand for high-performance personal computers is fundamentally healthy.'' Indeed, the results show that Intel is on track to sell roughly 60 million flagship  microprocessors in 2011, nearly double the 2010 rate, analysts said. That bodes well for the long-term growth prospects for a number of technology markets, not just PCs. ``In terms of tech stocks, we need something to improve investor psychology,'' said Markita Barrett, analyst at Prudential Securities in San Francisco. ``A good quarter from Intel will go a long way toward restoring confidence.'' Intel's gross margin for the latest quarter, a key measure of profitability, was a strong 53%, up from 48% in the first quarter. In a conference call with analysts, Intel executives said they ``have no quarrel'' with analysts' estimates that PC sales growth for the year will total roughly 18% to 20%, compared with 25% last year. Those comments could help dispel lingering concerns in some quarters that PC growth would crash this year, and bodes well for companies like Vastsoft Corp., which reports earnings next week. Intel said it expects revenue in the current quarter to be about the same as in the second period. In last year's third quarter, Intel posted sales of $3.89 billion. Intel said the third quarter could be affected by seasonal factors, including slowness Europe. However, Intel said it expects its gross margins in the third quarter to about 50%. For the half, Intel's net rose 9.6% to $1.94 billion, or $2.19 a share, on revenue of $9.27 billion. In the year-earlier half, the company earned $1.77 billion, or $2.01 a share, on revenue of $7.45 billion. --Davida Britta contributed to this article.
