Intel: 'No recovery - but things feel modestly better'

Intel on Tuesday reported a first-quarter profit that beat analyst expectations by two cents in an otherwise flat quarter.

The chipmaker's net earnings for the quarter, which ended 29 March, were $915m, or 14 cents per share, on revenue of $6.75bn. That compares with earnings of $936m, or 14 cents per share, on revenue of $6.78bn in the same period a year ago.

Analysts had expected Intel to earn a profit of 12 cents a share on revenue of $6.7bn, according to a survey by earnings tracking firm First Call.

"Our financial performance for the quarter was solid, with our computing-related business performing better than expected and our flash business coming in below expectations," Intel CEO Craig Barrett said in a statement.

The company's Intel Architecture Business Group, or PC chip business, booked revenues of $5.76bn during the quarter, basically the same as one year ago. But its Wireless Computing and Communications Group showed a wider loss of $94m, compared with $68m for the same period a year ago.

During its mid-quarter update, Intel said PC processor sales were running at or slightly ahead of projections. But the company said a decision to increase prices on flash memory by between 20 per cent and 40 per cent backfired and reduced sales.

Intel's revenue outlook for the second quarter remains uncertain, due to the state of the global economy. But the company said it expects second-quarter revenue to come in between $6.4bn and $7bn.

Still, Intel executives were upbeat about the company's prospects when they joined a conference call following the earnings release.

Hitting the midpoint of its predicted second-quarter revenue range of $6.4bn to $7bn - something CFO Andy Bryant suggested is a possibility - would have Intel showing a six per cent year over year increase in revenue, ahead of seasonal trends, Bryant said. The past few years have seen Intel's second-quarter revenue the same as, or down slightly from, the first quarter.

Intel has now seen revenue for the last two quarters come in at the high end of seasonal trends, which has the company feeling optimistic.

"We've seen something in the last two quarters we haven't seen in the last two-and-a-half years, which is two quarters (the fourth and first) that came in at the high-end of seasonality," Bryant said. "Does it feel like a recovery? No, but it feels modestly better."

Bryant added, "I don't think it's a big change - because it's still within seasonal ranges - but it's certainly nice being at the upper end, versus the lower end of those ranges."

Indeed, signs of a wholesale PC recovery have yet to materialise, though there has been some pickup in corporate buying, especially in Western Europe, the executives indicated.

While Intel's first-quarter performance was good, it could have been better. Revenues from flash memory were disappointing after the chipmaker raised prices anticipating that the market would begin moving to new, higher-density chips that can store more date.

"In hindsight we may have miscalled the rapidity of that move," said Paul Otellini, Intel's president. "We're looking at a number of alternatives including pricing and re-engaging (customers) with lower density products."

While executives admit it may take a while for Intel to regain its footing in flash memory, they're certain PC products are headed in the right direction.

The chipmaker is transitioning to new processors that offer a better combination of battery life and performance for notebooks, and higher performance for desktop PCs. The switch-over began with the introduction of the Centrino family of chips for notebooks, last month.

The launch of a new family of chipsets for desktop PCs, including the 875P chipset that debuted earlier this week, will set the stage for higher-performance desktop processors, including Prescott, a successor to the Pentium 4 that is due later in the year.

Overall, analysts believe that Intel is in good shape, thanks to its newest processor, the Pentium M for notebooks, and relatively slow price reductions seen so far this year. Intel has only cut prices once on desktop Pentium 4 chips this year. However, the chipmaker is expected to lower prices again soon, when it delivers its new 3.2GHz Pentium 4.

"Despite missteps in flash, Intel remains the dominant microprocessor and flash manufacturer with increasing performance advantages in both markets," Joe Osha, a Merrill Lynch analyst, wrote in a report issued before Intel posted its results. "The company’s competitive positioning is improving."

David Becker writes for News.com