AP
Intel 1Q profit meets subdued forecasts, revenue hits record
Tuesday April 15, 6:32 pm ET
By Jordan Robertson, AP Technology Writer
Intel 1Q profit matches Wall Street's subdued forecast in sign core business remains healthy


SAN FRANCISCO (AP) -- Intel Corp.'s first-quarter profit matched Wall Street's subdued expectations, a sign the company's core microprocessor business remained healthy amid fears of a broader slowdown in technology spending.

The stock jumped about 7 percent in after-hours trading Tuesday after the technology bellwether forecast higher profit margins in the second quarter and signaled that it is thriving while its smaller rival, Advanced Micro Devices Inc., continues to stumble.

Santa Clara-based Intel said Tuesday that its net profit for the three months ended March 29 was $1.44 billion, or 25 cents per share. That represents a 12 percent decline from the year-ago period, when Intel earned $1.64 billion or 28 cents per share. But it was in line with the average estimate of analysts polled by Thomson Financial.

Intel's sales of $9.67 billion -- a 9 percent improvement over last year and a record for the first quarter -- came in slightly higher than Wall Street's estimate of $9.63 billion.

Intel's chief financial officer, Stacy Smith, said the results reflect the company's ability to overcome slumping prices in some segments of the semiconductor market with a new chip-making process that lowers the manufacturing costs for each chip.

"What we're seeing is the strength of the core business is offsetting that weakness," he said in an interview.

Intel warned in March that a steeper-than-expected drop in prices for a type of memory chip called NAND flash -- commonly used in digital cameras and MP3 players -- hurt profits more than anticipated. Analysts lowered their estimates.

Memory chip prices have been under pressure because of oversupply and fierce competition, a trend that has cut deeply into the profits of companies like Samsung Electronics Co., the world's largest memory chip maker.

It was a surprise that Intel, whose primary business is making microprocessors -- a different type of chip that acts as the brain of personal computers and servers -- was hurt so badly.

Intel is the world's No. 1 maker of microprocessors with about three-quarters of the worldwide market. AMD, which has been dragging under the weight of heavy acquisition costs and fierce competition, is No. 2.

Intel began making NAND flash in 2006 under a joint venture with Micron Technology Inc. to cash in on growing demand for the most popular type of memory for consumer electronics, a move that some analysts now say was ill-timed considering the price plunge for those chips.

Intel Chief Executive Paul Otellini said the joint venture is rethinking how much factory space it wants to devote to making NAND flash and has delayed construction on its new factory in Singapore for the memory chips as a result.

He added that economic jitters didn't appear to have harmed Intel in its major markets during the latest quarter.

Microprocessor prices were flat in the first quarter and unit sales declined from the fourth quarter. Smith said those results were in line with seasonal trends in the semiconductor industry.

The company forecast second-quarter sales of between $9 billion and $9.6 billion, which was in line with analyst expectation.

Intel's gross profit margin -- a key measure of its ability to control the cost of making its chips -- is expected to be 56 percent, plus or minus a couple percentage points, higher than the gross profit margin of 53.8 percent in the first quarter.

Intel and AMD have both been hurt by their intensifying competition.

AMD is scheduled to report first-quarter results Thursday. The Sunnyvale-based company warned last week that sales across all business units were lower than expected and that it plans to cut 10 percent of its global work force, or about 1,600 workers. Analysts are expecting a loss of 51 cents per share on $1.51 billion in sales.

Intel finished cutting about 10,500 workers, or 10 percent of its own work force, last year in a move to shore up profits amid fierce competition with AMD.

Intel shares rose $1.51, or more than 7 percent, to $22.42 in after-hours trading. They closed Tuesday up 22 cents at $20.91 before the results were released.