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Intel mocks PC slowdown, laughs at skittish economy

Q3 a record for sales and profits

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Worries about the global economy, the IT spending environment, and a slowdown in PC sales – none of it mattered one tiny bit for Intel as it completed another record-breaking third quarter.

In the third quarter – which ended on October 1 this year, and not September 25 as it did last year – the chip giant posted $14.2bn in sales, up 28.2 per cent from the year-ago period. However, cost of sales – a measure of the cost of buying raw materials and production for Intel's chips – rose faster and ate into net income a bit, which rose by only 17.4 per cent to $3.47bn. Intel spent $150m less on R&D than it planned to in the quarter, too, which helped some. But even with all that, the revenues and profits broke records – again.

Paul Otellini, Intel's president and CEO, said in a conference call with Wall Street analysts and reporters that notebook processors and chipsets (Intel sells a platform for the most part) had double-digit unit growth compared to the year-ago period, and delivered record revenues and profits for the notebook segment. Intel's PC Client Group had sales of $9.4bn, up 22 per cent, while the Data Center Group, which makes microprocessors, chipsets, and motherboards for server customers, booked $2.5bn in sales, up 15 per cent.

The fact that PC chip sales held up meant that Intel did not have to rush to get its "Sandy Bridge-EP" Xeon E5 server processors to market and could instead just ship the ones it could make to HPC and Internet data center customers during Q3.

In the aggregate, Intel's other units had $1.4bn in sales – flat from Q2 but up 68 per cent because of acquisitions, notably of Infineon's wireless division and networking-chip maker Fulcrum Microsystems.

Intel's Atom processors and chipsets took a hit, falling 24 per cent to $269m. The Software and Services Group brought in $541m, up 6 per cent, with $459m of that coming from McAfee security products.

Otellini reiterated that the Xeon E5 processors and their related "Romley" platforms would launch in early 2012, but provided no additional insight on when this might be. He made the same comparison to the "Nehalem-EP" Xeon 5500 ramp of three years ago that Intel's top brass was chanting in unison at IDF in September: that the Xeon E5s have 400 design wins already, twice that of the Xeon 5500s at the same point in their launch schedules, and that the company was expecting for a factor of 20 more Xeon E5s to ship in the wake of the launch as the Xeon 5500s did at the bottom of the Great Recession in early 2009.

On the storage front, Otellini said that storage-related Xeon processor sales set records, which is why the company has been gung-ho to get Xeons into networking equipment, too, and bought Fulcrum Microsystems to help it do that.

Intel CFO Stacey Smith said he expected that Intel might have taken away $50m to $100m in share from rival Advanced Micro Devices – so if you are thinking Intel is growing and AMD is going to get hammered in its Q3 results, that's not what is happening.

What is happening, according to Otellini, is that consumer spending on PCs is weak in Europe, but enterprise spending on PCs and servers alike is holding up – enterprise PCs represent about a third of Intel's PC-related sales, said Otellini.

And in the growth markets, PC sales are booming. China is now the number-one PC market, followed by the United States, and Brazil is now third. "The global PC landscape is changing," said Otellini.

And it is not changing for the worse for Intel – at least not yet, and possibly not even when ARM-based processors try to come into the PC and server markets from their smartphone and tablet strongholds.

Intel generated $6.3bn in cash in the quarter, and spent $1.1bn on dividends and $4bn buying back its own shares. Because the cost of borrowing cash is so low for Intel, the company also did a $5bn debt offering during the quarter, which is slated to do more share buybacks. Intel's board authorized another $10bn in share buybacks going forward, bringing the current allocation of cash available to $14.2bn.

Looking ahead, Intel expects for Q4 sales to fall between $14.2bn and $15.2bn. At the midpoint of that range, Intel will break $55bn in sales this year. ®

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