updated 10/18/2005 8:37:49 PM ET 2005-10-19T00:37:49

Strong demand for notebook computers powered by Intel Corp. chips helped boost third quarter profits by 5 percent.

In the three months ended Oct. 1, the world’s largest maker of PC microprocessors earned $2 billion, or 32 cents per share, compared with $1.91 billion, or 30 cents a share, in the same period a year ago.

Revenue rose 18 percent to $9.96 billion compared with $8.47 billion in the year-ago period.

Intel said the latest results included an increase in taxes of about $250 million and the payment of $140 million to MicroUnity Inc. as part of a $300 million settlement in a patent infringement case.

Analysts were expecting the chip maker to earn $2.1 billion, or 33 cents per share, on sales of $9.92 billion, according to a survey by Thomson Financial. In September, the Santa Clara-based company had tightened its revenue forecasts to between $9.8 billion and $10 billion.

Analyst Charlie Glavin of Needham & Company said the Wall Street forecast did not take into account the 2-cents-a-share impact from the legal settlement. On that basis, Intel beat analysts’ expectations by a penny.

Intel said it expects revenue in the fourth quarter to total between $10.2 billion and $10.8 billion, in line with analyst forecasts of about $10.6 billion.

Shares of Intel slid more than 3 percent in after-hours trading, falling 77 cents to $22.95, after gaining 26 cents during the regular Nasdaq session in advance of the earnings report.

As in recent quarters, Intel reported strong demand for its Centrino chips for wireless-enabled laptop computers. The chips, like the computers, carry a price premium over those built for desktop machines.

Overall, sales of notebook chips rose to $3.54 billion from $2.56 billion in the year-ago period, accounting for a third of the quarter’s revenue.

Asia — especially China and India, but excluding Japan — was the segment leader in revenue growth, with sales in the region increasing by 28 percent compared to the year-ago quarter, Chief Financial Officer Andy Bryant told analysts during a conference call. The region accounted for 52 percent of Intel’s revenue, compared to 19 percent generated from the Americas and 20 percent from Europe.

Intel said it shipped a record number of chipsets that control communication between the processor and the rest of the computer, but the company continues to struggle to meet demand, Bryant said. Chipset supply constraints are expected to continue into the fourth quarter, he said, but will hopefully ease thereafter as the company adds production capacity.

Shipments of flash memory, used primarily in cell phones, also set a record.

Still, some analysts think a weakening in overall sales of desktop computers — where Intel chips command about a 90 percent share of the market — could eventually hurt the chip giant.

“Intel’s financial position and status as the semiconductor bellwether may be in jeopardy if it fails to find strategic opportunities in other faster growing markets such as communications and consumer electronics,” Apjit Walia, a semiconductor analyst at RBC Capital Markets, wrote in a research note Tuesday.

The company also has been under pressure in the corporate server market from Advanced Micro Devices Inc., which beat Intel to market by six months with its high performance “dual-core” chips.

Intel Chief Executive Paul Otellini said he expects Intel’s dual-core products to be a main driver of revenue growth for the fourth quarter. Since Intel launched the product line in September, it has shipped 1 million units, and the company expects to ship “millions” more in the fourth quarter, he said.

For the first nine months of the year, Intel earned $6.21 billion, or $1 per share, compared with $5.39 billion, or 82 cents per share in the same period in 2004. Nine-month sales grew to $28.63 billion from $24.61 billion last year.

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