APRIL 14, 2010.

Intel's Profit Surges as Demand Snaps Back

By DON CLARK

Intel Corp.'s profit and revenue surged in the first quarter, kicking off an upbeat earnings season for technology companies as demand continues to improve for products like laptop computers and server systems.

The Silicon Valley chip giant called it the strongest first quarter since the company was founded in 1968, aided by new microprocessors that arrived just as companies and consumers became more receptive to buying computers.

"Demand for these new products has been incredible," said Paul Otellini, Intel's chief executive officer, during a conference call with analysts, adding that Intel is seeing signs of corporate technology spending improving.

Intel's quarterly profit nearly quadrupled, while revenue rose 44%—both well above analysts' projections and the prediction Intel made in January. Intel shares, which hit a 52-week high Tuesday, gained 3.8% in late trading to $23.63.

Intel's profit surges as revenue jumps 44%. MarketWatch's Dan Gallagher tells Stacey Delo what's behind the chip maker's strong earnings report.
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.Intel said it plans to hire 1,000 to 2,000 new workers, its first substantial hiring in five years. The company also issued a rosy forecast for business in the current period, typically the industry's weakest season.

"This is a strong indication for all of technology as we move through earnings season," Edward Jones analyst Bill Kreher said. "Expect strong numbers out of PC makers as well."

Tech companies face an easy comparison with the year-earlier quarter, when uncertainty caused by the recession dried up purchases of electronic products and the components used inside them. Intel, which supplies the processors that run about 80% of the world's PCs, was among the most prominent victims.

But Intel also was among the first to see signs of recovery, aided partly by demand in markets like China that proved more resilient than the U.S. The company made several moves during the slump that positioned it well for a recovery, including trimming its work force and pushing new manufacturing technology that improves its products while lowering the cost to make them.

Intel also pressed ahead on the design front. It introduced a chip called Atom that helped fuel a market for low-priced laptops called netbooks, which sold well even in the depths of the recession.

As demand began improving, the fourth quarter of 2009 turned into one of the most profitable in Intel's history. The first quarter is traditionally slower, but executives Tuesday said they saw little slowdown.

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."We're really seeing demand in all regions of the world improving," said Stacy Smith, Intel's finance chief. He added that sales of servers that use its chips began to pick up last year and said buying is now spreading to corporate PCs.

Intel's profit for the period ended March 27 was $2.44 billion, or 43 cents a share, compared with earnings in the year-earlier period of $629 million, or 11 cents a share. Revenue rose to $10.3 billion from $7.15 billion a year ago.

The company's profits tend to swing more sharply than its revenues, in part because costs associated with operating its factories are largely fixed; once manufacturing volume surpasses a break-even point, additional unit sales are highly profitable.

The company's gross profit margin—which Intel projected in January would fall to 61% from 65% in the fourth quarter—came in at 63%, helped by higher selling prices for its chips. Intel Tuesday boosted its projection for all of 2010 to 64% from 61%.

"Intel is absolutely at the top of its game," said Phani Saripella, an analyst at Primary Global Research.

Significantly, analysts said, Intel didn't build up extra amounts of chip inventory, a sign that its manufacturing is not out-running demand. "That allays concerns," said Timothy Luke, who follows the company for Barclay's Capital.

Intel put revenue for the current quarter, at about $10.2 billion, roughly flat with the first period during a period sales usually decline.

—Jerry A. DiColo contributed to this article.
Write to Don Clark at don.clark@wsj.com

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