April 17 (Bloomberg) -- Intel Corp., the world's largest computer-chip maker, said first-quarter profit rose 19 percent after it paid less in taxes and slowed a slide in revenue.

Net income increased to $1.61 billion, or 27 cents a share, from $1.36 billion, or 23 cents, a year earlier, the Santa Clara, California-based company said today. Revenue slipped 1 percent to $8.85 billion, following a 9 percent drop last year.

Intel beat its target for gross margin and raised its profitability forecast for the full year, citing lower production costs and ``solid'' demand. The company benefited from new processors Chief Executive Officer Paul Otellini introduced to win back market share from smaller rival Advanced Micro Devices Inc.

``It was a relief that they came in with good gross margin and good gross margin guidance,'' said Fred Weiss, an analyst at Atlantic Trust Group Inc. in Boston. His firm owns Intel shares as part of the $16 billion it has under management. ``They have their costs well under control.''

Shares of Intel rose 45 cents to $21.43 at 6:48 p.m. New York time in extended Nasdaq Stock Market trading after the announcement. They have gained 9.3 percent in the past 12 months.

A reversal of previously accrued taxes boosted earnings by 5 cents a share. Excluding that gain, profit was 22 cents, in line with the average of analyst estimates compiled by Bloomberg.

Forecast

Intel, whose results are viewed as an indicator of demand for computers and related components, kicked off quarterly earnings announcements for the technology industry along with International Business Machines Corp. and Yahoo! Inc.

The company forecast sales of $8.2 billion to $8.8 billion for the current quarter, compared with an average analyst estimate of $8.86 billion in a Bloomberg survey. Gross margin, the only indicator of profit that Intel forecasts, will be about 48 percent, the company predicted.

For the year, Intel raised its gross margin target to 51 percent from a January prediction of 50 percent. Chief Financial Officer Andy Bryant told analysts that profitability will be boosted by lower spending on new manufacturing technology in the second half of the year.

Intel introduced new versions of its Xeon server chips today in Beijing, completing the transition of the company's product line to its new Core 2 Duo design. The company is trying to bring its market share back from an 11-year low after Advanced Micro won orders by being the first to come out with new technology.

``We're getting the benefit of better performing products,'' said Intel's Bryant said in an interview. He said that there was a ``little bit of firming in pricing'' during the quarter.

Competitive

Bryant and Otellini told analysts that they expect the market to remain competitive. Otellini said Intel's processors will retain their performance lead, despite a new Advanced Micro design scheduled for introduction in the middle of the year.

Intel's gross margin, or the share of sales left after manufacturing costs, was 50.1 percent in the first quarter, compared with an earlier forecast of about 49 percent.

Average selling prices and unit sales fell from the preceding three months, Intel said. Those comments echoed statements by Advanced Micro, which last week reported an 8 percent drop in first-quarter sales. The Sunnyvale, California-based company will report complete earnings April 19.

``In light of AMD's preannouncement and the price war between these two companies, the Street was thinking gross margins would be a lot weaker than they were,'' said Gus Richard, an analyst at First Albany Corp. in San Francisco.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

Last Updated: April 17, 2007 20:05 EDT