Weak PC sales hit Intel profits

The traditional third-quarter bump was a little light this year for Intel with lower than expected earnings.

The chip manufacturer said on Tuesday it earned $1.9bn, or 30 cents per share, on sales of $8.5bn for the quarter that ended 25 September. Those figures included a tax benefit of 3.6 cents per share.

Revenue came in slightly higher than the expected $8.45bn, but earnings were slightly lower. Analysts expected earnings per share of 27 cents, an estimate that excluded the tax benefit.

While the company saw record shipments in server and notebook processors and market share increases in flash memory, lower-than-expected PC sales offset those gains, according to the company.

Revenue rose five per cent from the $8bn figure in the second quarter, while net income rose eight per cent, including the tax benefit, from $1.8bn. Typically, Intel sees a rise of about six per cent to 12 per cent in sales from the second to third quarter. Still, the third-quarter figures beat those from last year. Then, Intel reported $7.8bn in revenue and $1.7bn in net income, or 25 cents in earnings per share.

"We had a more robust view of the second half in the last conference call," said Intel President Paul Otellini, adding that one of the more notable soft markets was US retail.

For the fourth quarter, Intel said revenue should come in between $8.6bn and $9.2bn, which earlier in the year was the expectation for the typically weaker third quarter. Gross margins for the fourth quarter should come in at 56 per cent.

In September, Intel said it expected to post revenue of between $8.3bn and $8.6bn for the three-month period, with a midpoint at $8.45bn.

Although worldwide PC shipments are still expected to grow by more than 10 per cent this year, some of the momentum from earlier in the year has slowed, which has affected Intel.

In July, the company predicted that it would garner between $8.6bn and $9.2bn, leaving the midpoint at $8.9bn, for the September quarter.

The shortfall came as a result of lower-than-expected sales after an August price cut. Intel CFO Andy Bryant said the chipmaker failed to properly account for the processor inventory at PC makers left over from the second quarter.

Michael Kanellos writes for CNET News.com