May 27, 2024

Intel’s Quarterly Profits Are Lifted by Sales of Chips for High-End Servers

Despite facing one challenge after another in the first quarter, Intel posted strong profits on higher sales across its product line. The results surprised many investors, as well as Intel executives, who had projected a far bleaker quarter after a product recall, consolidation after two acquisitions and the effects of the Japanese earthquake on production.

The first quarter “was a very strong quarter and significantly better than we expected,” Stacy J. Smith, Intel’s chief financial officer, said in an interview on Tuesday.

The company had exceptionally strong sales of chips for high-end server computers that power corporate data centers and the Internet. This market for “cloud computing” is helping Intel weather the slowdown in other areas of the computer market.

“Intel continues to have a very strong position in the higher end of the market,” said Ashok Kumar, an analyst with Rodman Renshaw. “Their position there is golden.”

Intel appears to have managed to turn a disastrous product introduction into one of its most successful chips. A technical error in a companion chipset to the company’s long-awaited Sandy Bridge processor led the company to quickly issue a recall, fix those chips and then to reissue the product. The problem, Intel executives said, did not hurt Intel’s bottom line.

“Early demand has been outstanding,” said Paul S. Otellini, Intel’s chief executive, in a conference call with analysts.

Quarterly profit rose 29 percent to $3.16 billion, or 56 cents a share, up from a profit of $2.44 billion, or 43 cents a share, in the first quarter last year. Revenue for the quarter was $12.8 billion, up 25 percent from $10.3 billion a year ago. Revenue in Intel’s data center group grew 32 percent.

The report beat Wall Street’s forecasts handily. Analysts surveyed by Thomson Reuters had forecast revenue of $11.6 billion and earnings of 46 cents a share for the quarter. Intel’s profit margin was 61 percent for the quarter, in line with expectations.

Intel forecast second-quarter revenue of $12.5 billion to $13.3 billion.

The company announced the results after the close of the markets on Tuesday. Shares of Intel rose almost 5 percent in after-hours trading, after closing up 24 cents at $19.86.

With the PC industry facing mounting pressure from low-price tablet computers and smartphones, Intel executives said that the company planned to pursue both those areas. “We remain committed to success in the smartphone market,” Mr. Otellini said.

Kevin Cassidy, an analyst with Stifel Nicolaus, said the strong results showed that smaller devices had not hurt PC demand as much as some might have thought. “It shows there’s still a need for PCs in the world,” he said.

During the quarter, Intel closed on the acquisitions of Infineon Wireless Solutions and McAfee. The combination of both acquisitions contributed revenue of $496 million. Mr. Otellini told analysts that the earthquake and tsunami in Japan had closed its offices in the area but that Intel’s supply chain was not seriously affected.

Intel’s results come amid concerns about the overall health of the PC market. Just last week, the research company IDC released a report saying that the global PC market declined 3.2 percent during the first quarter, the first major contraction since the economic recession began. The company originally predicted quarterly growth of 1.5 percent over last year.

In explaining its gloomier view, the report pointed to rising fuel and commodity prices, combined with supply constraints caused by the recent earthquake and tsunami in Japan.

The Intel executives assured analysts that the company was not experiencing such a contraction, but rather the opposite, particularly in emerging markets. However, demand in the United States market remained soft, the executives said.

In the fourth quarter, Mr. Otellini said that he expected Intel’s revenue to grow about 10 percent for the full year. But in January, company executives said growth would probably be in the mid- to high teens. On Tuesday, Mr. Otellini adjusted that forecast yet again, projecting revenue growth of more than 20 percent.

“All of our product segments are growing,” Mr. Otellini said. “Over all, we are beginning 2011 with great momentum.”

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