Intel Profit Rises 59%Intel Profit Rises 59%

Intel has reported that profits soared 59% in the third quarter, driven by increased spending by businesses, which made up for the weaker-than-expected sales in the consumer market.

The world's largest maker of computer processors said Tuesday that revenue in the quarter that ended Sept. 25 reached a record $11.1 billion, 18% higher than the $9.4 billion in the same period a year ago. Net Income rose to $3 billion, or 52 cents a share, compared to $1.9 billion, or 34 cents a share.

Intel, considered a bellwether in the technology industry, said sales in the quarter were driven by "demand strength in emerging markets and a robust enterprise market segment." Companies, which delayed replacing older PCs during last year's economic recession, have been spending more on new computers.

Revenue from Intel's PC Client Group, which would include desktops and laptops sold to businesses, rose 14% from a year ago to $8.1 billion. Revenue from the company's Data Center Group, which would include chips found in computer servers, grew 30% to $2.2 billion.

One area where Intel saw a drop in sales was in revenue from its Atom processors and associated chipsets, which are used primarily in netbooks. The inexpensive mini-laptops were the fastest growing category in the PC market last year.

Intel reported that Atom sales fell 4% from the second quarter to $396 million. The reduction was not surprising given analyst reports showing that sales of netbooks has slowed considerably this year, as prices for thin-and-light laptops have fallen to a point where they have become a more powerful alternative.

Growth in netbook sales is expected to continue to slow, particularly if sales of the emerging category of tablet-style computers, such as the Apple iPad and Samsung Galaxy, grow as expected. Unit sales of tablets are expected to outpace those of netbooks in the United States in two years, according to Forrester Research.

In anticipation of this trend, Intel plans to tailor its Atom microarchitecture for tablets. "We fully expect to participate broadly and profitably in this product category," Paul Otellini, chief executive of Intel, told financial analysts during a teleconference that followed the release of earnings.

Intel also has high expectations for its upcoming next-generation microarchitecture, codenamed Sandy Bridge. Laptop and desktop chips based on the 32-nanometer architecture go into production in the first quarter of next year.

Intel expects Sandy Bridge to be a big hit with computer makers, because it merges graphics and x86 cores on a single die and delivers graphics capabilities similar to what's delivered in separate, low-end graphics cards today. By eliminating the need for the latter, computer makers will be able to reduce manufacturing costs with Sandy Bridge, Intel executives say.

Otellini told analysts that Sandy Bridge is a "stunning product" that will be "wind in our sails" in 2011. In looking at trends in the computer industry in general, as well as Intel's performance, Otellini said the industry appeared to be in a "healthy state of affairs."

"I don't see that changing going into 2011," he said.

For the fourth quarter, Intel forecast revenue of $11.4 billion, plus or minus $400 million. The midpoint of that range would represent an increase of 3% from the third quarter, which is below the average seasonal increase of 8%, Intel said. The company attributed the slower growth to continued "softness" in the consumer market and computer makers buying fewer chips to reduce inventory in anticipation of the Sandy Bridge launch.

Gross margin was predicted to be 67%, plus or minus a couple of points, in the fourth quarter, compared to 65.9% in the third quarter.

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