Intel upbeat after strong earnings

Intel shrugged off concerns that its core PC market is under pressure from tablets and smartphones, reporting strong fourth-quarter earnings and giving an upbeat forecast for this year.

The world’s biggest chipmaker reported fourth-quarter earnings ahead of Wall Street expectations, with profits of 59 cents a share on revenues of $11.46bn. Analysts expected 53 cents a share on sales of $11.36bn, according to a Bloomberg survey.

The Silicon Valley company admitted that “softness” that began mid-year in consumer markets was continuing, but it was being more than offset by record revenues from its business customers.

Paul Otellini, chief executive, said that the growing number of PCs and internet-connected devices such as smartphones and tablets meant there was more demand for its chips in servers in data centres as users accessed services in the “cloud”.

Intel said 2010 was by far its most profitable year with net income of $11.7bn, record revenues and gross margins reaching a record 67.5 per cent in the fourth quarter.

The company gave an upbeat outlook – predicting revenues of about $11.5bn for the first quarter, compared with analyst expectations of $10.7bn. It expects the launch last week of a new family of desktop and notebook processors, codenamed Sandy Bridge, to help drive sales.

Intel provides processors for four out of every five PCs sold, but it has yet to gain a significant foothold in tablets and smartphones, which are being increasingly favoured by consumers as computing devices.

The IDC and Gartner research firms reported on Wednesday that worldwide PC shipments grew less than expected in the fourth quarter, largely due to the impact of Apple’s iPad. They reported gains of 2.7 per cent and 3.1 per cent respectively, compared with earlier forecasts of 5.5 per cent and 4.8 per cent.

However, Intel’s fourth-quarter revenues rose more than 8 per cent compared with a year earlier and were 3 per cent higher than the third quarter. Intel shares rose 2.6 per cent in extended trading in New York on the news to $21.84.

It is the first large technology company to report this earnings season and its comments should create optimism on Wall Street about the prospects of others in the sector.

Intel recognises it faces a challenge from power-frugal chips based on designs by Arm of the UK and it announced it was increasing its capital expenditure in 2011 by 73 per cent to $9bn to make it more competitive.

This will pay for an extra factory and the move to the next level of miniaturisation – chips with circuit widths of only 22 billionths of a metre, down from
32 nanometre widths.

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