Intel Raises Guidance, Looks to the Clouds

SAN FRANCISCO — Intel came to town today to discuss its involvement in cloud computing developments, but even before the discussion began, the company had set the tone for the day with welcomed financial news.

Thanks to stronger-than-expected demand for microprocessors and chipsets, Intel (NASDAQ: INTC) said it now expects third-quarter revenue to reach $9 billion, plus or minus $200 million, instead of the $8.5 billion, plus or minus $400 million, it had previously forecast.

That’s great news for Intel on multiple levels. Not only is revenue up, but the margin of error has shrunk by half, meaning the company has a more accurate picture of its financial prospects. Sales for the third quarter of 2008 were $10.22 billion.

The news, combined with Dell’s good earnings yesterday, helped propel Intel’s stock up 88 cents, more than four percent, to $20.34 per share, the highest it has been since September 2008, before the economy collapsed. It also pulled the chip sector up on what had been a down day for the Dow Jones Industrial Average. AMD (NYSE: AMD) rose 5.6 percent, while nVidia (NASDAQ: NVDA) posted a 4.9 percent increase.

Intel expects gross margin percentage for the third quarter to be in the upper half of the previous range of 53 percent, plus or minus two percentage points. All other expectations are unchanged. The company is due to report Q3 earnings on Oct. 13.

Intel did not raise its earnings estimates, but FBR Capital Markets did, lifting it projection for GAAP earnings per share from $0.58 to $0.66 in 2009, and from $1.05 to $1.20 in 2010. The firm also raised its price target from $18.50 to $21, a mark Intel is approaching after today’s uptick.

“While we commend Intel management for its stellar process, product and business execution in this downcycle, we maintain our Market Perform rating, as [we] believe the Atom processor will drive negative cannibalization impacts in coming years, and we think that other stocks like [Marvell] and [Qualcomm] offer better growth and upside return at current valuations,” the firm wrote in a research note.

FBR had previously raised estimates on third-quarter PC sales from 15 percent growth over Q2 to 18 percent on word of increased buying and building by hardware vendors, which bodes well for a component supplier like Intel.

Head in the clouds

Intel executives in town to talk cloud computing were rather buoyant at the good news from their employer, and who wouldn’t be? The discussion centered around Intel’s vision for cloud computing and what it can do to help advance the concept and market.

The first generation of virtualization was all about consolidation, while the second stage was all about making things dynamic with live migration of applications, said Dylan Larson, Intel’s director of platform technology initiatives.

The third generation of virtualization will be about increasing automation to manage workloads, so if one server becomes overloaded, the load can be moved or balanced across a number of others without manual intervention, he said.

“Customers want more automation. The [virtual machine manager] is moving up the stack. It’s commoditizing and they want to drive more intelligence into those stacks. We can help by exposing a lot of instrumentation that they control with the VMM. They use that data to make the kind of migration decisions they need to make from an automation perspective,” Larson told reporters.

On the technological side, there have been advances such as moving from many 1 Gb Ethernet ports to a few 10 GbE ports, and making them more dynamically configurable. Coming advances could include adding instructions to the x86 architecture to support Advanced Encryption Standard (AES) security to allow for greater control of encryption.

Intel is also working on ACE, Advanced Cooling Environment technology, to lower power by reducing fan speed. “If you can reduce how much fans work even a little you get a substantial improvement in power,” Larson said.

Intel has done research in the past on running datacenters at higher temperatures and found no harm done, so it may start working with hardware OEMs to tell customers that they don’t necessarily have to keep their datacenters cold enough to store meat.

The discussion on virtualization will continue at the upcoming Intel Developer Forum conference, scheduled to run from Sept. 22-24.

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