Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

Intel tumbles as margins miss

World's No. 1 chipmaker reports revenue that beats estimates on strong chip sales, but margins disappoint.

By Rob Kelley, CNNMoney.com staff writer.

NEW YORK (CNNMoney.com) -- Intel reported second quarter sales that were above analyst projections and higher profits Tuesday citing strength in its chip sales.

But shares of Intel (Charts, Fortune 500), the world's No. 1 chipmaker, fell nearly 4 percent after the bell as it missed expectations for its gross margin, coming in at 46.9 percent, short of its forecast of 48 percent.

Intel said it saw earnings of $1.3 billion, or 22 cents per share (EPS) in the second quarter, including a tax item that boosted EPS by 3 cents per share.

Excluding that charge, the resulting 19-cent-per-share profit figure was in line with analyst expectations.

It earned $885 million, or 15 cents per share, in the same quarter last year.

The company reported revenue of $8.7 billion in the quarter, above estimates of $8.54 billion - and an increase of 8 percent from the prior year's quarter.

"It's a good solid quarter. We're still a little early in the company's turnaround," said Doug Freedman, an analyst with American Technology Research. "The reason the stock is down is because expectations were so high already. We're still early in the company's turnaround."

Intel has recently gained back market share from smaller competitor AMD (Charts, Fortune 500), which is set to announce its second-quarter earnings on Thursday.

"It has been more competitive than we expected this quarter," said Intel CEO Paul S. Otellini on a conference call. "We continue to believe the best defense against price wars is better products."

He said that the company was launching production of its 45 nanometer chips this fall, which should lead to better power efficiency. Intel will also increasingly focus on making chips for mobile Internet devices and consumer electronics, he told analysts.

The company has achieved great cost savings in the quarter after laying off 12,000 employees - or 12 percent of its work force - after announcing its restructuring, he said.

Intel stock is up 30 percent on the year, while AMD's has fallen by 22 percent.

Freedman said the results made him bullish about AMD, which could possibly see a revenue increase similar to Intel's. Top of page