SAN FRANCISCO – Worried that the ailing U.S. economy has spilled abroad and hurt global PC sales, investors had subdued expectations for Intel Corp. in the second quarter. Intel is the world's largest computer chip maker, and its fortunes rise and fall with swings in PC demand.
The Santa Clara-based company responded Tuesday with a 25 percent jump in profit and record sales in the quarter, fueled by strong sales of processors for laptop computers.
The results easily beat analysts' expectations and reassured Wall Street that Intel is weathering the dreary domestic economy thanks to its broad international reach, a robust product lineup, and a manufacturing advantage over smaller rival Advanced Micro Devices Inc. that lowers Intel's cost of making chips.
Intel Chief Executive Officer Paul Otellini said demand for Intel's chips remains strong “in all segments and all parts of the globe.” Three-quarters of Intel's business is outside the U.S.
Intel shares rose 23 cents, or 1.1 percent, to $20.94 in after-hours trading. They had risen 24 cents, or 1.2 percent, to $20.71 in the regular session before Intel reported its results.
Intel said its net income was $1.6 billion, or 28 cents per share, in the three-month period ending June 28.
That was 3 cents per share higher than what analysts surveyed by Thomson Financial were expecting. It was a 25 percent jump from the $1.28 billion, or 22 cents per share, that Intel earned a year ago.
Intel is profiting from surging global demand for laptops and the processors that power them, though lower prices for some of the fastest-growing models drove down Intel's closely watched average selling price in the latest quarter.
However, Intel can absorb the trend easier than AMD because Intel has made a faster switch to a new manufacturing process that lowers the cost of making each chip.
Intel is the world's No. 1 supplier of microprocessors, the electronic brains of personal computers. It commands about 80 percent of the market, with AMD owning roughly the other 20 percent.
Intel has been taking market share from AMD in recent quarters with a more robust product lineup. Meanwhile, AMD has been hurt by lengthy product delays and the substantial debt it took on to finance its $5.6 billion acquisition of graphics chip maker ATI Technologies, a deal done to bolster AMD's competitiveness in graphics.
Intel was hurt in the second quarter by its investment in a type of memory called NOR flash, which is widely used in cell phones but isn't as popular as another type of memory called NAND flash and used in gadgets like iPods and digital cameras. Intel said its revenues from NOR flash were “significantly lower” in the latest quarter.
Intel's sales set a record at $9.5 billion, up 9 percent over last year and $150 million higher than analysts' forecasts.
Further reassuring investors, Intel's sales forecast for the current quarter was in line with Wall Street's predictions.
Intel is projecting between $10 billion and $10.6 billion in sales for the third quarter.
Part of Intel's improving finances can be traced to aggressive headcount reductions.
Intel finished the second quarter with fewer than 82,000 employees. That's roughly 20,000 fewer workers than Intel had two years ago, when intense competition from AMD forced Intel to slash costs to reverse steadily sinking profits. Intel's cuts have come from layoffs, attrition and the divestiture of ancillary businesses.
The pendulum has now swung against Sunnyvale-based AMD, which has racked up more than $4 billion in losses over the last six quarters and is cutting 1,600 workers, or 10 percent of its global workforce.
