Intel’s ($INTC) First-Quarter Earnings Nearly Quadruple; Corporate Spending Up; Raise Guidance

by Sarah Devin

Beacon Contributing Writer

Intel (Nasdaq: INTC) recently reported first-quarter financial results, beating estimates and suggesting that companies have loosened up a little on upgrading employee laptops.

Intel’s evidence of an uptrend in corporate spending marks an encouraging sea change in the chip sector, as business outlays for IT spending nearly dried up for new products during the worst period of the recession, the company said.

The caveat to the rise in corporate spending, however, is that many corporate purchases during the quarter were motivated by the economics of buying new machines rather than spending on maintaining older ones, said Intel CEO Paul Otellini. Corporate customers bought older Intel chips instead of new ones, a more profitable sale than Intel’s older stock.

“I’m still not going to go out on a limb, and our customers aren’t going to go out on a limb, and say there’s a corporate refresh snapback cycle,” he said. “People are buying things to replace older machines because it’s just cheaper.”

Irrespective of the motivations behind buying PCs, Intel’s revenue of $10.3 billion exceeded analysts’ expectations by $500 million, and spiking 44 percent from the first-quarter of fiscal 2009.

Analysts note, however, an unusually low fiscal 2009 first-quarter revenue total of only $7.14 billion accounted more to the headline revenue percentage increase than any strong rebound it may suggest. Analysts had estimated revenue of $9.8 billion. Revenue fell 2.6 percent from the previous quarter.

The bellwether chip maker earned $2.4 billion, or 43 cents per share, for the quarter, up substantially from $629 million, or 11 cents per share, from the first quarter of 2009. Analysts were anticipating a profit of 38 cents per share, according to a Thomson Reuters poll.

The first-quarter 2009 earnings report was by far the worst of the recession, but Otellini assured investors that sales had �bottomed out�� a bold call that proved correct.

Intel raised its forecast for gross profit margin to a range of 62 percent and 66 percent of revenue in 2010, compared with earlier guidance of a range of 58 percent and 64 percent of revenue.
Intel also announce it expects to hire approximately 1,000 workers worldwide this year.

Intel’s quarterly reports serve as proxies for the sector, providing an early glimpse of the technology industry as the many suppliers of the industry benefit or suffer along with the giants they serve.
Another encouraging trend of the past two quarters includes a continuation of a corporate pick up in spending for back-end computers �the computers that run the Web and corporate information systems�at the two leaders of the server market, Hewlett-Packard Co. (HPQ) and IBM Corp. (IBM)

An increase in server processes is welcome news to Intel and rival AMD, as these processors contribute the most to these two companies’ ability to expand gross margin and profitability.