Chip maker sees higher revenue, gross margins in current quarter on improved demand.
August 22, 2003: 11:00 AM EDT
By Paul R. La Monica, CNN/Money Senior Writer
NEW YORK (CNN/Money) - Intel Corp. raised its revenue guidance for the third quarter, sending its stock sharply higher Friday morning.
The world's largest semiconductor manufacturer said it expects revenue between $7.3 billion and $7.8 billion for the quarter, up from earlier guidance of $6.9 billion to $7.5 billion. Analysts surveyed by earnings tracker First Call had a consensus revenue forecast of $7.2 billion, up from $6.5 billion revenue it posted in the year-earlier period.
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Shares of Intel (INTC: up $2.06 to $28.45, Research, Estimates), a component of the Dow Jones industrial average, jumped 8.1 percent Friday morning to $28.53 and at one point traded as high as $29.04, a new 52-week high.
In addition, Intel said that gross margins, which measure how profitable a company is after factoring in the cost of sales, are expected to be 56 percent, compared with the company's previous expectation of 54 percent.
Intel said it is seeing improved business demand in its core computer chip business across various regions and channels, although demand for its communications products remains soft.
The bullish news comes one day after Intel CEO Craig Barrett told Dow Jones Newswires in Taipei, Taiwan that corporate demand for PCs was slowly increasing but that it was premature to declare this a full blown recovery.
Intel CFO Andy Bryant reiterated the cautious tone on a conference call Friday morning, saying that it was still too soon to say whether or not business in September would be strong. But he did say that there appeared to be little build-up of inventory in the PC market, meaning that computers that are being shipped to retailers are selling, as opposed to sitting on the shelves.
Woody Calleri, an analyst with FTN Midwest Research, said that even if overall corporate demand is not picking up rapidly, the reason Intel was probably able to raise its guidance so substantially was due to the strong performance of its Centrino chipset, which is used in wireless notebooks.
The Centrino chips have higher average selling prices (ASPs) than chips for desktop computers, making them more profitable. Intel unveiled the Centrino chipset in March with much fanfare and has quickly emerged as a leader in the wireless chip market.
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Michael McConnell, an analyst with Pacific Crest Securities, estimates that Intel will ship approximately 2 million Centrino chipsets in the third quarter and that this will increase to between 5 million and 6 million chips during the fourth quarter.
"Centrino has created a buzz," McConnell said. "Corporations in general are starting to replace desktop products with notebooks."
Intel said it is still planning on releasing a mid-quarter update September 4 and added that its other expectations were unchanged. That means Intel is not boosting its capital expenditure plans for the year. In July, Intel said that it planned on spending between $3.5 billion and $3.9 billion this year, down from $4.7 billion in capital expenditures in 2002.
The company does not provide earnings-per-share guidance. Analysts expect the company to report earnings per share of 19 cents for the quarter, compared to 11 cents a share a year ago. But estimates are likely to increase, given the higher sales and margin guidance.
Intel's good news also lifted the broader semiconductor sector, with the Philadelphia Semiconductor Index gaining 3.1 percent Friday morning. Calleri said that for the most part, Intel's good news should be interpreted as specific to Intel but that overall, an improving PC environment would benefit other chip companies as well, including Advanced Micro Devices (AMD: up $0.64 to $10.09, Research, Estimates), Intersil (ISIL: up $0.85 to $28.00, Research, Estimates), and Integrated Circuit Systems (ICST: up $2.38 to $35.64, Research, Estimates).
Analysts quoted in this story do not own Intel and their firms have no investment banking relationship with the company
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