NEW YORK (CNN/Money) -
Intel Corp. Tuesday reported third-quarter earnings jumped 142 percent from a year ago, soundly beating Wall Street's earnings estimates on sales that were stronger than expected.
The world's largest maker of semiconductors said it earned $1.7 billion, or 25 cents a share, two cents per share better than the consensus estimate of analysts, according to First Call. Intel reported net income of $686 million, or 10 cents per share, a year ago.
Intel, which raised sales guidance in August, said revenue came in at $7.8 billion, ahead of the $7.7 billion average forecast and 20 percent higher than $6.5 billion a year earlier.
Intel (INTC: up $0.28 to $31.08, Research, Estimates) stock rose nearly 1 percent in regular trading on Nasdaq Tuesday. The stock has more than doubled this year, making it by far the best performing stock in the Dow Jones industrial average. Shares rose nearly 2 percent in after-hours trading, according to Island ECN.
Sales guidance raised
In a further bit of good news, Intel said that sales for the fourth quarter would be between $8.1 billion and $8.7 billion. The $8.4 billion midpoint of this range is higher than Wall Street's current consensus estimate of $8.3 billion. Intel reported sales of $7.2 billion in the fourth quarter of 2002.
The company also said that gross margins, a key measure of profitability, should be about 60 percent in the fourth quarter. Intel reported gross margins of 58.2 percent for the third quarter, ahead of the company's late-August forecast for gross margins of 56 percent. Intel does not give earnings-per-share guidance. Analysts are expecting Intel to report earnings of 26 cents a share in the fourth quarter.
Intel said it set unit shipment records in its main business of selling microprocessors, chipsets and motherboards to personal computer manufacturers. But more important, the company noted that average selling prices were slightly higher in the quarter.
Eric Rothdeutsch, an analyst with Friedman Billings Ramsey, said that strong sales of new products such as Intel's Centrino wireless chipset for laptops and a souped-up version of its Pentium 4 processor helped lift prices and profit margins. He expects this trend to continue into next year as the company introduces even more products, such as a version of the Pentium 4 geared toward gaming enthusiasts.
The only real weak spot for Intel appeared to be in the communications business. During a conference call with analysts, Intel President Paul Otellini said that demand for telecom products remained soft and that sales of flash memory chips, a key component in cell phones, fell in the third quarter even though unit shipments were higher.
Intel also raised its 2003 research and development budget to $4.3 billion from $4.2 billion and said its capital spending target for the year was now between $3.6 billion and $3.7 billion, compared with a prior range of $3.5 billion to $3.9 billion.
Patrick Ho, an analyst with Moors & Cabot, said that the latter move is a bullish sign since many on Wall Street were expecting cap-ex spending to be closer to $3.5 billion. He said the tightening of the budget indicates that Intel is willing to add capacity and must be comfortable that demand for chips is finally improving and sustainable.
During the call, Intel Chief Financial Officer Andy Bryant said that the company would discuss its capital spending plans for 2004 in January. But along those lines, Ho thinks that Intel may wind up spending between $3.9 billion and $4 billion on capital expenditures next year.
That would be great news for companies that sell semiconductor equipment to Intel. One such company, Novellus Systems (NVLS: Research, Estimates), reported its latest results Tuesday as well, and its stock gained 1.3 percent in after-hours trade. (For more about Novellus, click here.)
U.S. strength a bit of a surprise
Third-quarter sales rose across all of Intel's geographic areas, led by a 73 percent year-over-year jump in Japan and a 31 percent gain in Asia-Pacific. Otellini said that sales in China, India and Australia were particularly strong. The Asia-Pacific region is Intel's biggest market, accounting for 42 percent of total sales.
Revenue from the Americas only increased 3.5 percent from a year ago, but David Wu, an analyst with Wedbush Morgan Securities, said that the 11 percent increase in sales from the second quarter was surprisingly strong.
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Wu said the U.S. sales were bolstered by consumer and small businesses, and added that once large businesses finally begin to buy new computers, Intel will really be in the sweet spot. "The corporate PC upgrade cycle hasn't really started yet," Wu said.
Still, Bryant remained cautious about the prospects for a major recovery in spending, saying that there was still no evidence that IT budgets were increasing. But Intel has proven with its third-quarter report that it is a company that tends to be extremely conservative when it comes to giving forecasts.
Rothdeutsch said that Intel's solid report is good news for other chip companies, which in turn is just what the overall tech sector needs in order to keep rallying.
"There is no doubt that there is an economic recovery under way and this benefits all semiconductor companies," Rothdeutsch said.
Analysts quoted in this story do not own shares of Intel and their firms have no investment banking relationships with the company.
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