Intel's earnings impress

Intel (INTC) generated a monster reaction to their great second-quarter results, which they reported yesterday after the closing bell. The chipmaker’s reported profits that were nearly double the average estimate.

Second-quarter sales jumped 12% from the previous quarter as PC makers boosted orders for chips in anticipation of increasing demand in the second-half. CEO Paul Otellini explained that businesses probably won’t start buying PCs until next year, but Asia (and especially China) is leading the recovery.

Intel’s Asia-Pacific sales were up 21% from the previous quarter, but still 8.2% below last year’s figures. Sales in the Americas rose 12% sequentially, while Europe dropped 9.4%.

Intel’s guidance for the third-quarter also impressed, with the firm projecting $8.1 billion to $8.9 billion in sales, compared with average estimates of $7.86 billion. Even more, Intel expects gross margin to be about 53%, which is also higher than estimates.

The thing that really caught everyone off guard was how fast Intel was able to shutter capacity and cut workers to drain chips out of the global supply chain, leaving PC makers to scramble for parts.

But what are we really seeing here? Intel is benefiting from a rebound in chip demand because of inventory restocking along the electronics supply chain. The third-quarter guidance suggests that Intel sees this trend continuing for a few quarters. But one must exercise caution.

The company is still not expecting a recovery in business PC demand until 2010, if then. Another sign of uncertainty is that Intel is still not forecasting full-year gross profit. As we have mentioned before, we must see significant increases in the level of global technology spending over the next several quarters for a sustainable recovery.

This message of caution also applies to the entire economy.


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Peter J. Lazaroff