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Intel reports rise in 3rd-quarter profits

Intel Corp. reported a rise in third-quarter profit Tuesday as strength in its personal computer business outweighed weakness in memory chips.
/ Source: Reuters

Intel Corp., the world’s largest chip maker, Tuesday reported a 15 percent rise in quarterly profit on an improved personal computer business, and gave an outlook that helped reassure jittery investors it could grow despite tough market conditions.

Shares of Intel, which had fallen in recent days on fears that the company would report disappointing results even after cutting its revenue forecast last month, rose more than 3 percent in after-hours trade.

Earnings in the third quarter ended Sept. 25 were $1.91 billion, or 30 cents a share, compared with a year-earlier profit of $1.66 billion, or 25 cents a share. Revenue rose to $8.47 billion from $7.83 billion last year.

“Because they’ve guided analysts carefully, it does get the third-quarter earnings season off on a good note but not a great one,” said Hugh Johnson, chief investment officer at First Albany Corp.

Intel is a bellwether for the technology sector.

The third-quarter profit included a tax benefit of 3.6 cents a share, including a six-tenths of a cent gain that the company had previously discussed.

Analysts on average had been targeting a third-quarter profit of 27 cents a share on revenue of $8.45 billion, according to Reuters Estimates. Excluding the 3 cents of unanticipated tax benefits, Intel’s quarterly profit was in line with analyst expectations.

Intel forecast fourth-quarter revenue of $8.6 billion to $9.2 billion, compared with the average analyst estimate of $9.1 billion, according to Reuters Estimates. The company also targeted a fourth-quarter gross margin of around 56 percent, slightly below analysts estimates.

The stock, which is off more than 35 percent for the year, rose in part because many investors had been bracing for a weaker showing. Intel is among several chip makers that warned on their outlooks as distributors built up inventories of chips on expectations of stronger demand that never materialized.

Intel managed to meet its latest financial targets set in early September, trim inventories, and project modest growth even in a difficult environment for chip sales, said Marshall Front, chairman of Front Barnett Associates LLC, which manages about 2 million shares of Intel.

“I think expectations had been managed to a point where even a modest miss would have been better than what people feared,” Front said.

Intel’s chief financial officer, in a telephone interview following the earnings report, said the company was starting to see progress in its plans to cut back on inventories of unsold and unfinished chips, although fourth-quarter demand was seen below seasonal expectations.

“We’re starting to see progress in cleaning up the inventory,” said CFO Andy Bryant. “As we look into the fourth quarter we still think there’s a little extra inventory in the system. We feel demand’s a little softer than you’d seasonally expect.”

One area of glaring weakness in Intel’s business is its communications group, which supplies flash memory chips for cell phones and makes other integrated circuits used in communications equipment. The business has racked up nearly $600 million in operating losses this year.

Bryant stood by Intel’s earlier target to make the business profitable on a quarterly basis sometime next year, but said the swelling losses in the group would make the job more difficult.

“The loss in the quarter of about $250 million in a step back,” Bryant said. “We’re going through our annual planning now but we haven’t given up on the goal. It did get more difficult.”