Demand for High-End Chips Drives Up Intel Profits

Increased demand for high-end, quad-core processors for servers and desktops enabled Intel to post solid financial results for the third quarter.

The numbers, released Oct. 16, show the Santa Clara, Calif., company's net income at about $1.9 billion for the quarter, an increase of 43 percent over the same period last year. Gross margins, a key metric in determining market share and profitability, stood at 52.4 percent, compared with 46.9 percent in the second quarter. The increase, according to Intel, was due to the volume of processors sold and the lower costs associated with the company's switch to 45-nanometer manufacturing processes.

While the volume of processors Intel shipped were high—it shipped more than 2 million quad-core processors alone—the average sales price for its chips remained flat compared with the second quarter. The average sales price of Intel's mobile processors was down slightly, but the company offset those losses by shipping more processors.

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For business customers and consumers, the result will likely mean that prices for Intel's processors for midrange and low-end notebooks will continue to fall, which will allow OEMs to pass the savings along in order to stay competitive with one another in the one market—laptops—that remains the hottest part of the PC market.

Read here Intel's and AMD's results for the second quarter.

While Intel was able to ship more processors during the third quarter, Technology Business Research analyst John Spooner, a former eWEEK writer and editor, said the company is still involved in a price war with rival Advanced Micro Devices, which means both companies will continue to cut prices for low-end and midrange laptop processors.

"It is our opinion that the flat [average sales price] shows that Intel continues to compete on price with AMD in many segments, including notebooks," Spooner wrote in a research note. "Although Intel CEO Paul Otellini said that the chipmaker was selective in the deals it entered into during the quarter, we believe Intel nonetheless continued to see pricing pressure in bids for low-end and mid-range desktop and notebook processors. The result was a lower [average server price] within Intel's Mobility Group processor portfolio, which served to offset gains in server and desktop."

AMD, of Sunnyvale, Calif., is expected to release its third-quarter results Oct. 18.

As Intel looks to bring out its new, high-end Penryn family of 45-nm chips, the company should be able to drop the prices of older dual- and quad-core processors later this year.

After struggling for several years, Intel revamped its business model last year, which included the switch to its current Core microarchitecture, which forms the base of its Core 2 Duo and quad-core products.

In addition, the company has looked to slash jobs to save costs. The number of Intel employees is now at 88,000, down from more than 90,000 a year ago. During a call with analysts Oct. 16, company executives announced plans to trim another 2,000 workers from the payroll by year's end.

Revenue for the third quarter stood at $10.1 billion, an increase of 15 percent over the third quarter of last year. For the fourth quarter of this year, Intel is expecting revenue of between $10.5 billion and $11.1 billion, with gross margins of about 57 percent.

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