Intel posts increased profit, sees bright future

Chip sales in the company's PC and server groups were both up from last year

Intel reported an increase in quarterly profits on Tuesday, brushing off weakness in the consumer market and predicting "healthy worldwide demand for computing products" moving forward.

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Intel reported a net profit of US$3 billion for the third quarter ended Sept. 25, up from $1.86 billion in the same period last year. Its quarterly revenue topped $11 billion for the first time, reaching $11.1 billion, up from $9.39 billion a year earlier.

In August Intel lowered its revenue forecast to around $11 billion, citing weak demand for consumer PCs in mature markets. Its results this quarter were driven by "solid demand" from corporate customers, Intel said.

"Looking forward, we continue to see healthy worldwide demand for computing products of all types," Intel CEO Paul Otellini said in a statement.

Microprocessor revenue from the company's PC group was $6.3 billion, up from $5.2 billion the previous year. Microprocessor revenue for its Data Center group, which sells server chips, was $1.85 billion, up from $1.38 billion a year ago, Intel said.

The company is due to release faster and more energy-efficient microprocessors for laptops and desktops in the first quarter next year, based on a new microarchitecture called Sandy Bridge.

Intel also hopes to expand into new markets such as those for tablets and TVs. Logitech and Sony have announced Google TV products that use an Intel Atom chip customized for TVs and set-top boxes. Some devices makers have also designed tablets based on Intel's Atom chips.

Intel projected fourth-quarter revenue to be $11.4 billion, plus or minus $400 million. The enterprise market will continue to grow with strong server shipments, but weaker-than-expected shipments of consumer laptops in mature markets could hurt revenue, Chief Financial Officer Stacy Smith said on a conference call after the report.

Consumer PC shipments were strong in emerging markets, especially in China through white-box vendors, Otellini said. White-box PCs typically are built to order by small, independent PC makers. The softness on the consumer side was in the U.S. and Europe, as discretionary spending subsided during the quarter.

Sales in the enterprise market were partly driven by the replacement of client PCs and growing demand for cloud servers, Otellini said. There was a 20 percent year-over-year increase in chip shipments for cloud servers and a 50 percent increase compared with the second quarter of this year.

CIOs continue to slowly upgrade client PCs to Windows 7, Otellini said. Sandy Bridge processors could provide a spark to the refresh cycle in the first calendar quarter of next year, Otellini said. The chip is highly integrated and brings better application, security and graphics performance to PCs, he said.

However, the overall PC market will continue to grow at a steady rate of about 12 percent to 18 percent next year, Otellini said. Demand for netbooks has softened, but the company is looking for a revenue boost by focusing on new areas such as tablets.

In fact, tablet shipments are already biting into PC shipments by a few million units per quarter, Otellini said. IDC has projected PC sales to reach 355 million units this year. Users will see more Intel-based tablets with Windows, Meego and Android operating systems in the coming quarters, Otellini said.

"We think tablets are exciting and we fully welcome their arrival. Apple has done a great job reinventing the category," Otellini said.

The company is developing low-power Atom chips for tablets, including a chip code-named Oak Trail, which was announced in June. Beyond strong performance, Oak Trail will offer full Windows compatibility, which is important for enterprises, Otellini said. Vendors such as Hewlett-Packard and Cisco have already announced Atom-based tablets.

Intel also said it wanted to integrate 3G (third-generation) and 4G mobile data modems inside Atom chips in order to establish a presence in the smartphone space. The technology will come from Infineon, which agreed to sell its wireless unit to Intel this quarter.

Copyright © 2010 IDG Communications, Inc.

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