News Column

Intel reports big profit for second quarter, beats analysts' predictions

July 15, 2014

By Steve Johnson, San Jose Mercury News



July 15--SANTA CLARA -- Reflecting better-than-anticipated personal-computer sales to businesses, chip-making giant Intel reported an impressive increase in earnings that beat Wall Street's expectations for the second quarter in a row.

The company said it made a $2.8 billion profit in its second quarter, a 40 percent jump from the same period a year ago. Its sales of $13.83 billion were up 8 percent over the same period a year ago. That worked out to earnings of 55 cents a share

Analysts surveyed by Thomson Reuters generally had expected earnings of 52 cents a share on sales of $13.68 billion.

"I'm pleased with the second-quarter results," CEO Brian Krzanich told analysts during a conference call. But he cautioned that PC sales to consumers "remains challenging, primarily in emerging markets."

Intel also announced that its board has authorized the repurchase of $20 billion of its shares, with $4 billion of that occurring in the third quarter. Intended to benefit investors, such stock buybacks frequently result in a company's stock price increasing.

Intel Chief Financial Officer Stacy Smith predicted the Santa Clara chipmaker's sales would reach $14.4 billion in the third quarter.

"We are encouraged by the improved results, as PCs appear to be in a state of growth following two years of declines," said Edward Jones analyst William Kreher. "But visibility on the long-term health of the traditional PC market appears limited and Intel's competitive positioning in tablets remains weak."

Tech analyst Jack Gold was generally positive.

"Overall, this has been a very good quarter for Intel and shows that despite what some believed, Intel in not down and out in a changed market," he said. "They are reinventing themselves to the needs of the new market realities."

Intel reported its earnings after the market's official close, when its shares posted an increase of 22 cents -- or nearly 1 percent -- to $31.71. It's shares got an added boost of more than 4 percent in after-hours trading.

Because it is the world's biggest chipmaker in terms of revenue and a trailblazing Silicon Valley legend, Intel's earnings reports have long been regarded as a barometer of the overall tech industry's health. But the company's sales have slowed in recent years, due to dwindling consumer purchases of personal computers, which mostly run on Intel's microprocessors.

Consequently, Intel has been trying hard to get its chips into other devices, making some headway in the smartphone and tablet markets, for example. Nonetheless, those segments remain dominated by firms using an alternative chip design licensed from British company ARM Holdings.

Intel also is making a big push to have its chips power the so-called Internet of Things, which includes a huge array of household, retail, industrial, automotive and other gadgets that are being computerized and linked together. In addition, it is exploring using its advanced manufacturing plants to build chips for other companies, including its competitors.

Following its first-quarter earnings in April, which slightly beat analysts' expectations, Intel's shares have been trading at their highest level in 10 years.

Some of the recent improvement in PC sales is due to Microsoft ending its support for its Windows XP operating system, prompting purchases of newer computers with newer operating systems. In addition, corporations have been modernizing their computer equipment, after putting off such upgrades for several years.

Although problems still dog Intel's business, "stronger PC outlook (however temporary) is doing well to mitigate them for the moment," concluded Bernstein Research analyst Stacy Rasgon in a note this week to his clients. But he offered caution about Intel's future, adding, "while the company appears to be taking a bullish tone, we have seen this movie before."

In a separate note, Raymond James analyst Hans Mosesmann noted that "while the company will likely continue to benefit from a commercial PC upgrade cycle over the immediate term," that's not likely to last long. Moreover, he expressed concern about ARM chipmakers pressing for a growing share of the computer server market, also long dominated by Intel.

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Contact Steve Johnson at 408-920-5043. Follow him at Twitter.com/steveatmercnews.

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(c)2014 San Jose Mercury News (San Jose, Calif.)

Visit the San Jose Mercury News (San Jose, Calif.) at www.mercurynews.com

Distributed by MCT Information Services


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Source: San Jose Mercury News (CA)


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