A look at the numbers

By Reuters  |  Print this article Print

Intel posted better than expected revenue and margins and gave a strong outlook for early 2011 -- enough to quell concerns over the company's fate over the rise of tablet computers that are most often based on ARM, not Intel, processors.

Shares of Applied Materials (NASDAQ:AMAT), KLA Tencor (NASDAQ:KLAC), Novellus (NASDAQ:NVLS) and other producers of chipmaking equipment rallied between 4 and 6 percent after Intel executives said they were almost doubling capital spending in 2011 to $9 billion, plus or minus $300 million.

Intel is building a new fabrication plant in Oregon and upgrading several existing factories to manufacture its next-generation 22-nanometer microprocessors.

Intel stock rose 2.4 percent in after-hours trading after closing down marginally at $21.29 on NASDAQ.

Intel posted an 8 percent increase in fourth-quarter revenue and forecast revenue of $11.1 billion to $11.9 billion in the first three months of 2011.

The fourth-quarter revenue slightly exceeded the $11.37 billion expected by analysts, according to Thomson Reuters I/B/E/S. Analysts, on average, had expected revenue of $10.73 billion in the first three months of 2011.

Intel had a record gross margin of 67.5 percent in the fourth quarter, compared to 66.7 percent expected by analysts.

It forecast a gross margin of 64 percent in the current quarter, plus or minus two percentage points. Analysts had forecast a first-quarter gross margin of 63.5 percent.

Intel said net income totaled $3.4 billion, or 59 cents a share, in the fourth quarter, compared with 53 cents per share expected by analysts.

Major technology companies are expected to keep up sales and profit growth in 2011, but economic troubles in the United States and Europe could temper their results.

Intel, however, also faces the unique challenges of safeguarding its 80-percent-plus market share in an evolving environment where consumers are choosing mobility and connectivity over processing power.

Apple Inc's (NASDAQ:AAPL) iPad and other tablets, powered by ARM-based architectures, consume less power and their longer battery life is winning over users. Some analysts foresee the imminent end of the PC era.

Intel Chief Executive Paul Otellini told analysts on a conference call to watch out for improved versions of Intel's Atom mobile chips in a wide array of tablets this year.

"You will also see Atom processors appear in smartphones, operating at very competitive power levels with performance that will lead the industry," Otellini said.

The Philadelphia Semiconductor Index .SOX has surged around 43 percent since the start of September but Intel's shares gained only about 20 percent in that time as some investors expected the company might not be able to maintain its record-level margins.

"But the numbers aren't really what matters here. What matters and will overshadow the numbers is the challenges they have in terms of the end markets and what happens with PCs and handsets, and Windows getting ported to ARM and all those challenges which put them in a tough spot," said Jefferies & Co analyst Adam Benjamin.

"The numbers today are not what the business is going to look like in a year from now, (or) two years from now." (Additional reporting by Alexi Oreskovic, Liana B. Baker, Yinka Adegoke and Caroline Valetkevitch; Editing by Edwin Chan and Richard Chang, Phil Berlowitz)