Mobile chips help Intel profits beat expectations

Mobile chip sales helped Intel surpass revenue and profit expectations in the first quarter, while the company said it will invest more money than expected in capital equipment in 2005 to accelerate a manufacturing shift.

Revenue for the first quarter came to $9.4bn, a 17 per cent jump over the same period last year, while net income came to $2.2bn, or 34 cents a share, a 31 per cent increase over 26 cents in earning per share last year for the same period.

Although the first quarter of 2005 contained an extra week, which partially accounts for the rate of growth over last year, the numbers beat Wall Street expectations.

Analysts had expected Intel to report $9.3bn in revenue and 31 cents in earnings per share. In March, Intel narrowed its revenue guidance from between $8.9bn and $9.4bn to between $9.2bn and $9.4bn.

Revenue in the second quarter is expected to be between $8.6bn and $9.2bn.

The results may buoy investors. Last week, an earnings miss by IBM caused the stock market – as well as other technology stocks prices – to drop.

Intel attributed the growth in part to sales of mobile parts, which include notebook processors and flash memory for mobile phones. Gross margins, or the amount of money left over after expenses, came to 59.3 per cent, higher than the 57 per cent expected. Gross margin typically increases when there is a shift to more expensive parts. The company's gross margin estimate for the year was raised to 59 per cent, up from an earlier estimate of 58 per cent.

Intel also said it planned to increase capital spending for the year from between $4.9bn and $5.3bn to between $5.4bn and $5.8bn. The increased investment is "driven primarily by stronger than anticipated business and increased confidence in the company's 65-nanometer process technology ramp," the company said.

The 65-nanometer manufacturing process, which will be used to produce chips for sale later this year, will result in smaller, faster and ideally less expensive chips.

Accelerating a manufacturing transition can help a company gain market share. Unanticipated problems and other factors can neutralize the advantage, however.

Michael Kanellos writes for CNET News.com.