Intel Forecasts Second-Quarter Sales That May Top Estimates; Stock Surges

Intel Corp. (INTC), the world’s biggest chipmaker, forecast second-quarter sales that may top analysts’ estimates, evidence of booming demand for machines that deliver computing over the Internet.

Revenue will be $12.8 billion, plus or minus $500 million, Intel said today in a statement. That compares with $11.9 billion, the average of analysts’ projections compiled by Bloomberg. Shares surged as much as 6.7 percent in late trading.

The company is benefiting as mobile devices including Apple Inc. (AAPL)’s iPad drive demand for online services provided by Intel- powered servers. Even as PC sales came under pressure last quarter, Intel’s 80 percent share of the microprocessor market boosts sales when companies upgrade their server and PC fleets.

“This is the strength of a new product cycle,” Hans Mosesmann, an analyst at Raymond James & Associates Inc., said in an interview. “There’s a refresh cycle occurring in the servers space, and they are probably gaining share.”

Intel, based in Santa Clara, California, rose as high as $21.19 in extended trading after the report. The shares had gained 24 cents to $19.86 at 4 p.m. New York time on the Nasdaq Stock Market. The stock has lost 5.6 percent this year.

First-quarter net income rose 29 percent to $3.16 billion, or 56 cents a share, from $2.44 billion, or 43 cents, a year earlier. Analysts on average had estimated profit of 46 cents. Sales increased 25 percent to $12.8 billion, compared with an average prediction of $11.6 billion.

Cloud Demand

Customers are snapping up the machines needed to deliver computing, software and storage over the Internet -- via the so- called cloud. Sales of servers used to deliver cloud computing may rise to $6.4 billion in 2014, representing 1.3 million units, from $3.8 billion, or 600,000 units, last year, according to researcher IDC.

“The server business exceeded our expectations as strong demand from the data-center segment continued,” Intel Chief Financial Officer Stacy Smith said in a statement posted on Intel’s website.

Gross margin, the only indicator of profitability that Intel forecasts, will be 61 percent, plus or minus a couple percentage points, this quarter, the company said. Gross margin -- the percentage of sales remaining after deducting production costs -- was 61 percent in the first quarter.

Server Sales

The company’s sales of chips for servers, storage and networking devices should reach $10 billion this year, Chief Executive Officer Paul Otellini said on a conference call to discuss earnings.

“What we are witnessing is an explosion of computing devices that connect to the Internet, and Intel is a big part of this trend,” Otellini said.

The chipmaker also expects more companies to buy computers based on its microprocessors as they continue to refresh their PCs. Intel estimates that 75 percent of corporate computers still run Microsoft Corp.’s Windows XP software. PC sales should grow at a percentage in the low double digits in 2011, Otellini said.

Intel also faced challenges in the first quarter. The company said in January that one of the support chips it makes for its microprocessors had a flaw that would cost it $300 million in sales in the first quarter. It predicted having to spend $700 million on replacing faulty chips and systems.

On April 13, IDC said global personal-computer shipments unexpectedly fell 3.2 percent in the first quarter as businesses and consumers held off on purchasing new PCs. The market- research firm also said the March 11 earthquake and tsunami in Japan and unrest in the Middle East may have disrupted PC sales.

Mobile, Tablet Laggard

The results may help quell investors’ concerns that the company has yet to parlay its dominance in PCs into market share for mobile-phone and tablet chips.

Apple’s iPad tablet works on a mobile-phone processor based on technology from ARM Holdings Plc. (ARM) Some makers of rival tablets have opted for less power-hungry chip designs than Intel now offers. The popularity of tablets is cutting into sales of cheaper laptop computers, said Christopher Danely, an analyst at JPMorgan Chase & Co.

On April 11, Intel announced a new product, called Oak Trail and sold under its Atom brand, that is 60 percent smaller than its predecessor and will provide “all-day” battery life in touch-screen computers. And the company has designed a handset that may be manufactured by China’s ZTE Corp., according to two people with knowledge of the plan.

On the call today, the company touched on how it plans to gain ground in mobile devices, particularly chips for phones, a market dominated by rivals like Qualcomm Inc.

Some 35 tablets based on Intel’s chips should come out this year, the bulk of them based on Google Inc.’s Android operating system, Otellini said. He said he would be “very disappointed” if there’s not a phone based on Intel’s chips available for sale in 12 months.

To contact the reporters on this story: Olga Kharif in Portland, Oregon, at okharif@bloomberg.net.

To contact the editor responsible for this story: Tom Giles at tgiles@bloomberg.net.

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