Intel Defies Economy, Seasonal Weakness

Intel on Tuesday announced a 25 percent jump in profits over the second quarter of 2007 thanks to its aggressive cost cutting and continued strength of its products, despite U.S. economic problems and seasonal softness.

Normally, the second quarter is the weakest time of year in the hardware business, but Intel sales rose 9 percent over 2Q07 to $9.5 billion for its fourth record quarter of revenue in a row. The chip giant’s aggressive program of cost cutting has paid off to the tune of a 67 percent improvement in operating income and a net profit of $1.6 billion, a 25 percent improvement over last year.

That translates to 28 cents per share, three cents better than analysts were expecting. Intel shares rose 21 cents in after-hours trading, after rising 24 cents to $20.71 during the regular trading session of the day.

During a conference call with financial analysts, CEO Paul Otellini was very upbeat on the quarter’s numbers. “Demand continues to be strong, with revenue and unit shipments at high end of the norm when taking into account the divestiture of the NOR business,” he said.

Intel is in the process of finalizing the spin-off of its NOR RAM business with STMicroelectronics.

The 45nm manufacturing process continues to ramp up, with the company expected to ship 100 million chips this year, Otellini said. They are getting better yields than at 65nm and expect 45nm to become the dominant manufacturing process this quarter.

Another segment growing faster than Intel expected: notebooks. Otellini said that notebook processor sales surpassed desktops in Q2. “That was sooner than we expected,” he said.

The other surprise is Atom, its embedded chip. Atom sales are exceeding expectations and unit shipments will grow sharply in second half. The company is increasing production of Atom every 40 days as demand rolls up in netbook, embedded devices and consumer electronics.

Chief Financial Officer Stacy Smith said that microprocessor revenue was up 14 percent, with mobility accounting for one-third of total quarterly revenue and up 15 percent from 2Q07. All geographies experienced year-to-year growth, including the U.S., and were a little better than average on a seasonal basis.

“We are aware of global issues that dominate the market these days,” he said. “We saw order patterns [grow] as anticipated. Inventories are healthy, our global footprint is benefiting from demand.”

For the third quarter, Intel projects revenue between $10 and $10.6 billion, which would be two percent growth year over year at the midpoint of that range. Gross margin will be around 58 percent.

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