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Intel boosts Q3 guidance

Wall Street cheers silver lining in big, black cloud

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Wall Street and the IT market got some good news this morning, after the market opened as chip maker Intel said that its third quarter ending in September is shaping up to be better than expected.

In a short, but sweet, statement put out by the company, Intel raised its revenue expectations for Q3 and also tightened its range, meaning some uncertainty has been removed from the PC and server channels that Intel sells its products into. Intel says that it anticipates sales in the third quarter will be $9bn, plus or minus $200m, which is considerably better than the $8.5bn, plus or minus $400m, that Intel was projecting as it finished its second quarter in June.

In last year's third quarter, when the U.S. economy was staggering like a drunk on a mortgage-backed bender and was starting to collapse to the ground, Intel's sales were up only 1 per cent to $10.2bn, but Intel could bring $2bn to the bottom line. The bottom fell out of the IT market in the fourth quarter, of course, sending Intel and other suppliers reeling. The new normal is not going to be as good as conditions before the summer of 2008, but it might not be as bad as it has been in the first half of 2009, either.

That said, sales in the third quarter of 2009 of between $8.8bn and $9.2bn, as Intel is projecting, still represents a decline of between 9.8 and 13.7 per cent compared to the year-ago quarter. In 2009, for every $1bn or so in incremental revenue that Intel has been able to bring in, a little less than half has dropped to the bottom line (excluding a €1.06bn fine imposed on it by the European Commission in May). So the incremental sales in Q3 should boost Intel's profits considerably.

In Q1, Intel's sales came in at $7.1bn, and net income came in at $647m; Q2 saw sales climb to $8bn and net income (excluding the EC fees) of $1bn. So it is reasonable to assume that sales of between $8.8bn and $9.2bn should see Intel bring about $1.2bn to the bottom line, all things being equal. (And perhaps more if the Nehalem chip ramp is going better than expected.) Even if Intel does this well on the profit front, that is still a 40 per cent decline on profits, against an 11.8 per cent decline in sales compared to the third quarter of 2008.

But, Wall Street takes the good news where it can find it these days, and Intel's shares rose by 4.6 per cent in the morning, hitting $20.36 a pop as we went to press. ®

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