Intel Hits High Note in Second-Quarter Earnings

Intel had plenty of good news in its second quarter earnings results announced today, but the optimism was dampened by its admission of production constraints. The chip giant reported record second-quarter revenue of $9.2 billion, up 15 percent year-over-year and down 2 percent from last quarter. Revenue in the third quarter is expected to be between $9.6 and $10.2 billion.

With demand for its products, particularly in the mobile area, running at record levels, Intel conceded it wished it had more production capacity. “I’d like to build more inventory, we’re lower than we would like to be,” Intel chief financial officer Andy Bryant said in a conference call with analysts. “It’s the goal to increase capacity, but I don’t think we’ll make a lot of progress [near term]. It will be a challenge.”

Intel’s stock, which had risen more than 20 percent this year, dipped 4.2 percent in after-hours trading. Still, it’s generally better to be dealing with problems of strong demand than excess inventory. “I am generally optimistic about Intel’s growth for the second half of the year,” said Nathan Brookwood, analyst with Insight64. “In general, the semiconductor industry is doing well, and Intel is a bellwether company.”

Intel does, however, face potential challenges from rival AMD. “The only wild card for me is how well Intel does in servers,” said Brookwood. “The Xeon line is Intel’s most profitable line, and we’ll have to see if AMD’s strides in that market make a dent on Intel going forward. So far it hasn’t.”

Intel also faces several antitrust actions instituted by AMD. AMD’s U.S. case isn’t expected to go to trial in the U.S. for more than a year — if it even reaches that phase. But the case could prove a distraction for Intel executives much as Microsoft’s Bill Gates and other executives had to prepare for depositions in the case brought against the software giant by the Department of Justice. European regulators are having their own look into Intel’s competitive practices.

Intel CEO Paul Otellini addressed the AMD lawsuits at the start of the call with analysts, repeating an earlier statement that Intel competes aggressively but complies with the law. He declined to take questions on the matter. Otellini did elaborate briefly on the AMD lawsuit in Japan where Intel was found to have acted illegally as a monopoly. “We disagreed with the Japan court’s conclusions (that Intel acted illegally),” said Otellini. He said Intel agreed not to challenge the Japanese court and made changes in some of its business practices so it could continue to do business there unimpeded by the courts.

Otelinni said Intel is seeing tremendous growth in emerging markets such as Latin America and China. He also was extremely optimistic about the company’s transition to several new technologies, including servers and its mobile line of products. Centrino , Intel’s processor for notebooks, has become the fastest-ramping mobile platform in the company’s history, accounting for over 50 percent of what Intel calls performance mobile shipments in the first full quarter after launch.

Moving forward, Intel said it will continue investing in mobile technologies such as next-generation wireless broadband. For example, Intel has announced plans with Sprint, Huawei Technologies, Nokia and Arraycomm to help advance the development, deployment and adoption of WiMAX networks. Intel and Huawei plan to enable carrier-grade networks using WiMAX technology. Also, Intel and ArrayComm have plans to incorporate additional technologies into the IEEE 802.16 specification to support smart antenna technology that can improve overall WiMAX network range, capacity and coverage quality.