updated 10/13/2009 6:03:42 PM ET 2009-10-13T22:03:42

Intel Corp.’s third-quarter numbers show the company is getting better at doing more with less in the toughest stretch for the personal computer industry in nearly a decade.

The world’s No. 1 microprocessor maker said Tuesday that profit and sales both fell 8 percent in the July-September period, as the company was hurt by sluggish demand from businesses and lower prices for its chips. Intel has insisted things are improving, however, and offered better-than-expected guidance for the fourth quarter, sending its shares up 5 percent.

As the first major technology company to report third-quarter earnings, Intel’s numbers will lend insight into the strength or weakness of PC makers’ demand for new chips. What the figures don’t necessarily show, though, is whether PC companies are stocking up on chips to replenish low supplies, or whether they expect especially brisk sales of computers. That will begin to play out in the coming weeks, as the holiday season gets under way and a new edition of Windows comes out Oct. 22.

Intel’s chief financial officer, Stacy Smith, said demand from consumers for PCs has been strong, but spending by corporations remained weak. He said Intel doesn’t expect business spending on PCs to pick up again until next year.

Intel said after the market closed that its net income was $1.9 billion, or 33 cents per share. Analysts expected 28 cents per share, according to a poll by Thomson Reuters. Last year, Intel’s profit was $2.0 billion, or 35 cents a share, in the year-ago period.

Sales were $9.4 billion, better than Wall Street’s forecast of $9.0 billion.

Intel had bumped up Wall Street’s expectations twice. The first time was in August, when it raised its guidance, and the second was last month, when its CEO, Paul Otellini, predicted that PC sales could defy predictions by growing in 2009, which would avert the first sales decline from the prior year since 2001.

Still, the company’s latest numbers show the recession continues to take a toll, even as Intel gets more skillful at wringing more out of its business.

The company’s gross profit margin was 57.6 percent of revenue. Its previous forecast was for 51 percent to 55 percent of revenue, and in the last quarter the figure was 50.8 percent.

Gross margin is especially important for a manufacturing-intensive company such as Intel because it measures how well a company is controlling its costs. Making computer chips can be prohibitively expensive, and Intel has had to get each microprocessor cheaper to produce.

Another challenge for Intel comes from one the PC industry’s hottest segments: “netbooks,” little laptops that cost a few hundred dollars and have limited functions beyond surfing the Internet. The gadgets aren’t big moneymakers for PC makers and suppliers such as Intel, because netbooks cost less than full-size computers and can cannibalize sales of more expensive machines.

For the fourth quarter, Intel forecast sales of $10.1 billion, plus or minus $400 million. Analysts expected $9.5 billion.

Intel shares jumped 99 cents, 4.8 percent, to $21.48 in extended trading. Before the earnings report the stock had closed at $20.49, up 9 cents on the day.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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