Last updated: July 14, 2010 1:13 am

Record quarter for Intel lifts tech sector

Intel reported the best quarter in its history as corporate customers increased information technology spending, boosting hopes that businesses are engaged in a long-awaited “refresh” of both hardware and software in the aftermath of the financial crisis.

The results from the world’s biggest chipmaker boosted the technology sector at the start of the second-quarter earnings season. Intel’s shares rose more than 8 per cent to $22.74 in extended trading in New York, after it reported revenues of $10.8bn, gross margins of 67 per cent and earnings per share of 51 cents.

All were records for the Silicon Valley company, coming in well ahead of analyst expectations of $10.25bn in sales and 43 cents per share in profits, according to a Thomson Reuters survey. The results are likely to fuel investor optimism at the start of the crucial US earnings season.

Paul Otellini, chief executive, said Intel was running ahead of a global economic recovery because of a fundamental shift towards working on the internet. This included companies hosting applications and services in the “clouds” of remote data centres, where server chip sales were up 170 per cent on a year earlier.

“As internet traffic continues to boom, the cloud build-out is accelerating in order to keep pace,” said Mr Otellini.

The company expects a “robust” and “seasonal” second half, with sales of about $11.6bn in the current quarter – ahead of analyst forecasts of $10.9bn forecast in a Bloomberg survey. An extra $400m announced in capital spending is aimed at bringing forward its next generation of processors.

Intel said companies were reducing the number of servers and replacing them with hardware that was more powerful and energy efficient, thereby reducing electricity bills.

“The return on investment that our new server offerings deliver is extremely compelling and is a major reason for the strong demand we are experiencing,” Mr Otellini said.

Companies, including small businesses, were refreshing their desktop computers in broad-based buying, Intel said. All markets round the world had performed better than the seasonal average.

At the other end of the scale, netbooks appeared to be performing well. After an inventory correction in the first quarter led to speculation that the category was on the wane, Intel reported that sales of its Atom processor for netbooks had increased by 16 per cent, amid strong sales of the latest dual-core version.

Mr Otellini said he expected about 40m netbooks to ship this year and agreed with forecasts that PC units would grow by about 20 per cent overall. Sales had been driven by consumer purchases, particularly of notebooks, in previous quarters, but there had been a return of corporate purchases in the second quarter.

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