Intel 4th-quarter profit balloons as the personal computer market rebounds

Thursday, January 14, 2010

Intel 4Q profit climbs as PC market turns around

Intel Corp. said Thursday its fourth-quarter profit blew past expectations, confirming a rebound in the recession-battered personal computer market is under way.

Intel’s bright profit outlook for 2010 means the No. 1 maker of computer microprocessors sees a lasting recovery past the stellar fourth quarter — not an isolated holiday shopping blip.

PC shipments grew more sharply than expected in the fourth quarter, a promising sign after a brutal year for the industry during the recession. Intel, which supplies the vast majority of the “brains” inside computers, rode the resurgence of consumer PC shopping to a profit of $2.3 billion, or 40 cents per share.

That was more than nine times as much as it earned in the year-ago quarter, when profit totaled $234 million, or 4 cents per share.

Intel also posted its highest gross profit margin in history, at 64.7 percent. A higher gross margin number means the chipmaker was able to turn more revenue into profit. It’s a key measure for a manufacturing-intensive company such as Intel because it reflects how well costs are held in check.

Sales climbed 29 percent to $10.6 billion, as Intel sold more chips, many at higher prices than in the past.

Analysts expected a profit of 30 cents per share and $10.2 billion in revenue, according to a Thomson Reuters poll.

Intel is the first major technology company to report its results for the fourth quarter, and it’s seen as a barometer for the PC market and for technology spending in general. Stacy Smith, Intel’s chief financial officer, said in an interview that he believes consumer spending will continue to drive growth in Intel’s business in 2010.

Intel hasn’t yet seen signs that big companies are feeling freer to replace old computers, but Smith said he believes it will happen this year, once the companies have finished testing the new Windows 7 system from Microsoft Corp. that will be installed on most new workplace PCs.

Over the last year, consumers flocked to low-end laptops and the smaller, less powerful “netbooks.” Intel said the popularity of those devices, which contain less lucrative microprocessors, hasn’t cut into demand for higher-end chips.

The company’s optimism about 2010 was clear during a conference call Thursday afternoon, when executives said Intel would hire more employees as part of an increased focus on research and development.

Intel also predicts a gross margin of 61 percent for the year, much higher than analysts’ forecast for about 55 percent.

In the current quarter, it expects revenue from $9.3 billion to $10.1 billion, and a gross profit margin of 59 percent to 63 percent. Analysts were looking for first-quarter revenue of $9.3 billion and a gross margin of 59 percent.

Investors had sent Intel’s shares up 2.5 percent to close regular trading Thursday at $21.48. The stock gained about 1 percent more after hours.

Intel delivered strong fourth-quarter results despite having to pay $1.25 billion to settle antitrust charges brought by Silicon Valley rival Advanced Micro Devices Inc., the world’s No. 2 microprocessor maker. That cut 22 cents from Intel’s bottom line. The company also had said, however, that the payment would lower its tax rate because legal settlements are tax deductible.

In the comparable quarter last year, Intel’s earnings were hurt by a $1 billion charge for a reduction of the value of its investment in wireless networking company Clearwire Corp. That sliced 17 cents from the company’s profit.

Intel’s full-year earnings fell 21 percent to $4.4 billion, or 77 cents per share, from $5.3 billion, or 92 cents per share in 2008.

Revenue slipped 7 percent to $35.1 billion from $37.6 billion a year ago.

Analysts were looking for earnings of 67 cents on $35.1 billion in revenue.

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