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Intel's Busy 2010 Includes 32nm Ramp Up

Intel said consumer demand has returned and it expects there will also be an uptick in business computing buying this year. That's good news for all of the hardware vendors that use Intel (NASDAQ: INTC) chips.

The chip giant, long considered a bellwether for the rest of the industry, exceeded analyst expectations for the fourth quarter with net income of $2.3 billion, or 40 cents a share, on revenue of $10.6 billion. Wall Street was expecting earnings of 30 cents a share on revenue of $10.17 billion.

In his opening remarks on a conference call with Wall Street analysts, Intel CFO Stacy Smith said "We have seen a return of consumer demand and replenishment to normal inventory levels after the precipitous demand drop at the end of 2008 and beginning of 2009. Operationally, the fourth quarter of 2009 was one of our most profitable quarters ever."

Paul Otellini, president and CEO, was also buoyant on the news. "Out fourth quarter results cap a great year of innovation and execution for Intel. We started the year with one of the deepest recessions in our history and emerged from it with new products and technology driving innovation worldwide," he said.

During the call with analysts, Otellini said the company saw increased sales in all product lines and in all regions, with notebooks leading the way. He also said servers had a strong quarter, which could be good news as server sales have been abysmal for the last few quarters. "The value proposition of Nehalem is significant," said Otellini.

Intel is ramping up the move to 32nm design with the desktop and laptop versions of the Nehalem architecture. Otellini said this ramp up was occurring faster than the move to 45nm in 2007. Details on when Intel expects 32nm production to surpass 45nm production, as well as when the Penryn family of processors will be retired will come at Intel's analyst meeting in May.

Smith said that capital reuse and efficiencies allowed Intel to ramp up to 32nm manufacturing and still spend less on capital equipment purchases for the year than originally forecast. Intel spent $4.5 billion on new equipment instead of the projected $5.2 billion.

Atom makes an impact

On the subject of Atom, Otellini said Intel has racked up more than 600 Atom design wins and there are 2,500 design engagements across 230 customers, 93 of which are brand new to Intel. The company now has 18 months of data on Atom sales and has seen "not any meaningful cannibalization of the notebook market by netbooks. Ninety percent are clearly additive and going into markets not served by notebooks."

Intel expects to refresh its entire server line in single, dual and multiprocessor designs with 32nm Xeons in the next three months. The current Nehalem-EP Xeon 5500 processors use 45nm designs.

Intel started making 32nm parts at the very high end, which is one reason why its gross margin of 61 percent was so high. Intel's margins are usually in the mid- to upper 50 percent range. As Intel works its way down into mid-range and mass market products, Otellini said he expects that margin to inch down.

For the first quarter of this year, Intel expects to report revenue of $9.7 billion, give or take $400 million. The company expects to spend $6.2 billion on research and development and about $4.8 billion on capital spending.

Andy Patrizio is a senior editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.