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Chips Up For Intel


With revenues increasing, board offers optimistic forecast.

On Tuesday, chipmaker Intel (INTC) reported second quarter profits of $1.6 billion, or $0.28 per share - substantially better than the $1.28 billion, or $0.22 per share, it posted in the comparable period last year. Earnings per share were also greater than the $0.25 a share that analysts had been expecting.

Intel's revenue for the quarter was roughly $9.5 billion, an impressive 9% jump from the $8.7 billion it posted in 2007's second quarter.

In its earnings release, Intel CEO Paul Otellini painted a rosy picture of the company's future: "As we enter the second half, demand remains strong for our microprocessor and chipset products in all segments and all parts of the globe."

The company's gross margin -- the
percentage of sales remaining, less production costs -- were also impressive: 55.4% in the period ending June 28th, which is a jump of 160 basis points over the 53.8% it reported last year. This is even more impressive given the fact that gross margins for the first quarter were 53.8%.

As a point of comparison, Intel archrival Advanced Micro Devices (AMD) reported a gross margin of "just" 42% in its most recently reported quarter. CEO Otellini was able to increase Intel's market share by increasing the speed at which new products were introduced.

The company's Atom chip, for example, is designed to power mobile devices like the Apple (AAPL) iPhone and Research In Motion's (RIMM) Blackberry. Production of the chip has already been repeatedly increased to meet rising demand. Otellini intends to aggressively seek out new markets, as well.

What most caught my attention, however, was the fact that the company spent approximately $2.5 billion on a buyback of 109 million shares of its stock in the second quarter. This speaks volumes about where the board thinks the shares are headed.

For those concerned about the waning economy (i.e. almost anyone with a pulse), Intel offered some solace in the form of estimated third-quarter revenues of $10 to $10.6 billion, and gross margins of "58%, plus or minus a couple of points."

Good news, given the fact that analysts are currently expecting a top line of $10.07 billion.

These are solid numbers, by any measure. Once the investment community has a chance to digest them, the stock could roll.

Intel closed at $20.71, up 24 cents or 1.17%.

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No positions in stocks mentioned.

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