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Signs Point to Uptick for Intel, Chipmakers

The economic news continues to be fairly dismal, with June retail sales down when they were expected to rise.

But that doesn't seem to be deterring system builders. Purchase orders of parts and build orders for new computer systems are even higher than they were just a month ago, according to market research firm FBR Capital Markets.

FBR did its monthly checks into PC builds with the top five notebook original design manufacturers (ODMs) and top four desktop motherboard makers and found that third-quarter PC builds are better than in July.

This translates to good news for Intel (NASDAQ: INTC), because you need chips to go into those new computers.

Intel has already enjoyed a good second quarter and was optimistic about this current quarter as well.

Last month, FBR projected third-quarter builds to rise 13 percent over Q2, a common occurrence since Q3 is when back-to-school buying begins. Plus, Intel and other tech giants have reported seeing some signs of improving economic conditions, while the release of Windows 7 is approaching -- also likely to spur sales.

FBR now projects growth overall growth of 18 percent quarter-over-quarter, with notebook units to grow 21 percent from last quarter, and desktop builds expected to grow 13 percent.

Notebooks and desktops were originally expected to rise 15 percent and 11 percent, respectively.

The company said the bump in notebook builds is due to continued momentum behind consumer ultra-low-voltage (CULV) models, or what AMD (NYSE: AMD) calls ultra-thin notebooks. The uptick is also due to new netbook launches and some slight early impacts from the upcoming launch of Windows 7.

In fact, parts are now in short supply. "We hear some component shortages still exist for hard disk drives, LCD panels, LED backlights, and LCD casings, an issue that could push some September production into 4Q (along with Typhoon impacts too)," FBR analyst Craig Berger wrote.

Another reason for lower LCD shipments: a major earthquake in Japan earlier this month that damaged a factory operated by Corning, a major LCD glass panel supplier. An article in the Taipei Times said output could be reduced by 5 to 10 percent in the short term.

Windfall for chipmakers

Thanks to the resulting jump in system builds, FBR estimates Intel's revenues will grow 8 to 10 percent sequentially in third quarter, which would be at the high end of Intel's guidance. FBR is leaving its earnings per-share estimates unchanged at $0.23 per share.

It also projects that this increase in system builds will have a positive impact on Marvell (NASDAQ: MRVL), nVidia (NASDAQ: NVDA), AMD and a number of other semiconductor makers.

FBR's one big concern is that Atom -- Intel's low-cost chip often used in netbooks -- might be too popular for Intel's own good.

"We believe the Atom is opening up many opportunities for Intel in the netbook, smartbook, embedded, and handheld sectors," Berger wrote. "That said, we remain concerned that cannibalization, from notebook to netbook, from desktop to 'nettop,' and from much higher CPU price points will mostly or fully offset other Atom-driven benefits."