Intel 3Q Beat, Optimism Boosts Stock
Intel Corp.'s soaring sales of microprocessors helped the company overcome
flat prices for those chips and reap a 43 percent boost in profits in the third
Now analysts are turning their focus to whether demand for Intel's chips will
hold up in the holiday season. They are debating whether PC makers overestimated
their needs and bought too many chips, which could lead to a backlog and then
a slowdown. Some say the market is cranking along as well as Intel believes
and the chip maker's sales will continue to be robust, driven by strong PC sales
Intel's microprocessors act as the brains of those computers.
Investors liked Intel's upbeat outlook and sent shares of the Santa Clara-based
chip maker up $1, or nearly 4 percent, to $26.48 in Wednesday morning trading
on the third-quarter financial results, which were reported after the market
close on Tuesday.
Bolstered by the swelling demand and its own lower costs following a massive
restructuring, Intel glided past Wall Street's already-bullish expectations.
Intel said it earned $1.86 billion, or 31 cents per share, in the three months
ended in September. That beat by a penny the average estimate of analysts surveyed
by Thomson Financial, and it's 43 percent higher than the $1.3 billion, or 22
cents per share, Intel earned in the year-ago period.
On a conference call to discuss the earnings report, management dismissed concerns
about a potential slowdown and said demand justified their higher financial
Intel also announced a management shake-up Tuesday, appointing Chief Financial
Officer Andy Bryant to the position of chief administrative officer, effective
immediately. His replacement as CFO is Stacy Smith, an Intel employee since
1988 whose latest job was assistant CFO.
Intel's revenues for the quarter were $10.09 billion, a 15 percent jump from
the $8.74 billion in sales rung up a year ago.
The sales surprise helped jolt Intel's stock. Analysts were expecting $9.62
billion in revenues, a figure already boosted by a surprise financial update
from Intel last month on the same day rival Advanced Micro Devices Inc. launched
its highly touted new Opteron server chip.
While it's competing fiercely for market share with its smaller rival, Intel
has also been aggressively cutting costs, including the elimination of 10,500
jobs, about 10 percent of its work force, announced in September last year,
to save about $3 billion annually by 2008. Intel said in April that it had completed
the restructuring but would continue to look for ways to cut costs.
On the conference call, management said Intel is now shrinking its work force
by another 2,000 employees and aims to exit the fourth quarter with 86,000 workers
"We've made remarkable improvement," Bryant said in an interview
after the report was released. "All things are going pretty well right
Sales in the fourth quarter are expected to be between $10.5 billion and $11.1
billion, topping analysts' prediction of $10.42 billion.
They were also heartened by improvements in Intel's gross profit margin, a
key figure scrutinized by analysts to gauge how well a company is managing its
pricing and manufacturing costs. Intel's gross margin is expected to rise from
52 percent of revenues in the third quarter to about 57 percent, plus or minus
a couple of percentage points, in the fourth quarter.