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Intel rides laptop chips and lower costs during Q2

Investors not impressed

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Strong notebook and server chip sales carried Intel to a second quarter that neared the high end of previous forecasts. Investors, however, seemed unmoved by the results, as Intel noted strong pricing competition in the desktop market and a reliance on cost-cutting measures to gloss its results.

Intel reported second quarter revenue of $8.7bn - an 8 per cent rise year-over-year. The revenue figure fits well within a previous forecast range, stretching between $8.2bn and $8.8bn. The chip maker's bottom line benefited from a workforce decimation, as net income came in at $1.3bn - a whopping 44 per cent higher than during the same period last year. Intel also posted earnings per share of 22 cents in the second quarter, which beat out last year's EPS figure by 47 per cent.

"We saw strength in the second quarter across the board - in all geographies and in all segments of the market," said CEO Paul Otellini, during a conference call with analysts.

Intel, however, enjoyed more strength in some segments than others.

Otellini flagged up a double-digit rise in server processor shipments year-over-year and a 20 per cent increase in mobile processor revenue as the quarter's highlights. Demand for desktop processors was higher than in past years, although Intel's revenue dropped due to a lower average selling price of its products.

"While demand for computers was strong, pricing remained competitive notably in the low-end of the PC marketplace," Otellini said.

Intel's flash memory business maintained its place as a quarter dampener with NOR sales coming in well below expectations. The lackluster flash shipments shaved one point off Intel's gross margin of 46.9 per cent.

The second quarter results were aided by lower R&D and marketing costs and by improved investment results.

During the quarter, Intel's server and PC chip business brought in $4.64bn in revenue, which compares to $4.62bn last year. The mobile chip business posted revenue of $3.30bn versus $2.69bn last year. And the flash business saw revenue drop to $494m from $536m last year. Intel is in the midst of creating a separate flash business in partnership with STMicroelectronics.

Overall, Intel portrayed the worldwide economy as "relatively strong" and expects third quarter revenues to come in between $9bn and $9.6bn - or about 6 per cent higher year-over-year.

The Intel Brass also noted that they expect the most pricing pressure versus AMD with low-end desktop chips and some notebook chips in the coming months. They claim the pricing pressure has eased a bit in the server market.

Shares of Intel dropped almost 5 per cent in the after-hours markets to $25.10, at the time of this report. ®

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