Intel's 1st-quarter sales, sunny guidance surprise Wall Street, reassure investors

Investors knew Intel Corp.'s profits would fall sharply in the first quarter because memory-chip prices had slid. What surprised Wall Street was how well the chip maker's core business in microprocessors held up.

Intel's shares jumped more than 8 percent Tuesday after the technology bellwether reported first-quarter profits that matched analysts' subdued expectations, along with sales that were slightly better than estimates and topped the company's first-quarter record.

A sunny forecast that kept profit-margin predictions for 2008 intact also helped boost the stock by signaling that the Santa Clara-based company expects to protect its profits despite falling memory-chip prices and fears of a slowdown in technology spending.

"The guidance was encouraging -- it tells me that Europe and North America haven't fallen into the ocean," said David Wu, semiconductor analyst with Global Crown Capital. "Those markets appear pretty good for Intel. And what's good for Intel is good for PCs."

Intel shares eventually settled 22 cents below the closing stock price when someone sold 145,840 shares at $20.69 in the last trade of the after-hours session. Wu attributed the dip to the light volume in extended trading and profit-taking from the after-hours jump.

Analysts lowered their profit estimates for Intel last month after it warned that plunging prices for NAND flash, a type of memory chip widely used in consumer electronics, hit the company harder than expected. Intel had only recently entered that market.

Tuesday's report reassured investors worried that global economic jitters had harmed Intel's microprocessor business, which accounts for the bulk of its sales.

Intel is the world's No. 1 maker of microprocessors, which act as the brains of personal computers and servers. Advanced Micro Devices Inc., which has been dragging under the weight of heavy acquisition costs and fierce competition, is No. 2.

Intel's net profit for the three months ended March 29 was $1.44 billion, or 25 cents per share. That's 12 percent lower than a year earlier, when Intel earned $1.64 billion, or 28 cents per share. But it was in line with the average estimate of analysts polled by Thomson Financial.

Intel's sales of $9.67 billion -- a 9 percent improvement over last year -- came in slightly higher than Wall Street's estimate of $9.63 billion.

Intel's chief financial officer, Stacy Smith, said the results reflect the company's ability to overcome slumping prices in some segments of the semiconductor market with a new chip-making process that lowers the manufacturing costs for each chip.

"What we're seeing is the strength of the core business is offsetting that weakness," he said in an interview.

Intel began making NAND flash in 2006 under a joint venture with Micron Technology Inc., a move that some analysts now say was ill-timed considering the price plunge for those chips.

Intel Chief Executive Paul Otellini said the joint venture is rethinking how much factory space it wants to devote to making NAND flash and has delayed construction on its new factory in Singapore for the memory chips as a result.

He added that economic turbulence didn't appear to have harmed Intel in its major markets during the latest quarter.

Microprocessor prices were flat in the first quarter, and unit sales declined from the fourth quarter, but Smith said those results were in line with seasonal trends in the semiconductor industry.

The company forecast second-quarter sales between $9 billion and $9.6 billion, in line with analyst expectations.

Intel's gross profit margin -- a key measure of its ability to control the cost of making its chips -- is expected to be 56 percent, plus or minus a couple percentage points, higher than its gross profit margin of 53.8 percent in the first quarter.

For the year, Intel expects a gross margin of around 57 percent, same as its previous forecast.

Intel and AMD, which is to report first-quarter results Thursday, both have been hurt by their intensifying competition with each other.

Sunnyvale-based AMD warned last week that sales across all its business units were lower than expected and it plans to cut 10 percent of its global work force, or about 1,600 workers. Analysts expect AMD to report a loss of 51 cents per share on $1.51 billion in sales.

Intel finished cutting about 10,500 workers, or 10 percent of its work force, last year in a move to shore up profits amid fierce competition with AMD.

Intel shares rose as high as $22.63 in after-hours trading, a gain of $1.72 from their closing price Tuesday of $20.91.

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