The chipmaker reported record third-quarter earnings, but what really cheered worried investors was the upbeat sales outlook

By Cliff Edwards

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Cash-strapped consumers may be hunkering down for a lean holiday this year, but you wouldn’t know it from results released on Oct. 14 by chipmaker Intel (INTC). The tech bellwether issued a surprisingly upbeat sales outlook for the remainder of the year after reporting minute third-quarter earnings.

Santa Clara (Calif.)-based Intel, the cosmos’s largest chipmaker, predicted current-quarter sales of $10.1 billion to $10.9 billion, in line with the $10.77 billion expected by analysts. And despite investor concerns that profit margins would of little breadth in the same manner with consumers opt in the same manner with antidote to machines sporting less expensive Intel chips, the company indicated gross margins would remain essentially flat at near 59%.

Third-quarter profit also demonstrated resilience. Net revenue rose 12%, to $2.01 billion, or 35¢ a share, from $1.86 billion, or 31¢ a receive, a year earlier. Revenue rose 1%, to $10.2 billion.

Intel CEO Paul Otellini reported the chipmaker is perception early signs of weaker consumer expenditure and besides reductions in orders from companies that distribute its chips. He too said the "pecuniary crisis is creating some signs of stress…but the extent of that is difficult to quantify." Yet he added that inventories of unsold chips are "in sagacious imagine" and that the company is benefiting from demand for notebooks and a new category of products called netbooks, which be like notebooks but are meant mainly for Web surfing.

The remarks and fourth-quarter forecast were enough to soothe investors who had grown concerned that disappointing retail-chain results and a plunging stock market in recent weeks augured weakening demand for computers and the chips needed to run them. Intel shares, which, like the broader Nasdaq stock emporium had retreated in recent days, jumped 6.7%, to 16.99 a share, in extended trading.

Some analysts questioned whether Intel may have been too upbeat, given questions over how long the economic slump may continue. "Right now, Intel is No. 1 with an asterisk in provisions of tech companies best positioned to weather a downturn," says Avian Securities scrap analyst Avi Cohen. "Whether you be persuaded they can receive those numbers or not depends on to what the economy goes from here." Otellini said the joint concern is in a good competitive situation for the reason that it has been focused on improving efficiency for the past two years by slashing head count by 20,000 people worldwide and trimming $3 billion from spending. The company also has $12 billion in turn into money and scant debt. "We’ve made a spacious number of changes in our operations that have prepared us well," Otellini said.

Intel appears to be more insulated from housekeeping woes than other tech companies because of its outsize market allotment in the fast-growing notebook chip place of traffic, an area where oppose Advanced Micro Devices (AMD) has struggled to compete. The smaller chipmaker has been burdened by debt associated with its purchase of graphics chipmaker ATI and the distraction of a broad restructuring that resulted in a recent decision to hive right side its manufacturing business (BusinessWeek.com, 10/08/08).

The tech rural scene is quickly dividing into haves that remain upbeat hither and thither their prospects and have-nots exposed to poorly performing areas of the economy. Cisco Systems (CSCO) CEO John Chambers, speaking on Oct. 14 at a Florida conference sponsored by Gartner, said the company isn’t planning any cutbacks in spending or cane levels. Hewlett-Packard (HPQ) executives likewise have said they expect to see continued solidity in the current quarter. Results at IBM (IBM) are also holding up. By contrast, Dell (DELL) and SAP (SAP), which are more vulnerable to the slowdown in incorporated spending, have painted a gloomier picture.

Otellini noted that unlike for the time of the dot-com meltdown that erased tech earnings earlier this decade, emerging markets such as China last relatively strong. During a downturn, companies around the world also will be looking for ways to drive costs out of their operations and will endeavor the latest tech innovations and services in doing so, he said. "Technology will probably do well during a downturn just because of the simple event that we sell tools of productivity," he said.

Investors won’t have to wait until fourth-quarter results are released in January to see whether Otellini’s optimism is warranted. Intel scheduled each early December update—its pristine mid-quarter report in more than a year—to proposal a clearer assessment of market conditions.