April 26, 2024

Intel Posts Profit That Beats Forecasts

“This was a very strong quarter across all our product lines and throughout the world,” said Paul S. Otellini, Intel’s chief executive, in a conference call with analysts. “Strong corporate demand for our most advanced technology, the surge of mobile devices and Internet traffic fueling data center growth, and the rapid rise of computing in emerging markets drove record results.”

Intel’s results were also lifted by strong demand from corporations and first-time purchases by customers in China and other emerging markets.

The company, the world’s largest maker of computer chips, said its net income after expenses rose 2 percent to $3 billion, or 54 cents a share, exceeding Wall Street estimates. Revenue increased 21 percent, to $13 billion.

Intel has for several quarters experienced a surge in demand for technology used in data centers, which store and process the huge amounts of information flowing across the Internet. The importance of that market was evident this week as Intel announced plans to acquire Fulcrum Microsystems, a privately held company that designs chips for data center networks. The terms of the deal were not disclosed. Revenue from data centers today accounts for roughly 20 percent of Intel’s sales.

“I fully believe that it is the data center — the cloud — that is driving Intel,” said Patrick Wang, an analyst with Evercore Partners.

Demand for cloud computing is created by the soaring popularity of smartphones and tablets, which provide consumers with continuous, on-the-fly access to the Internet. Mr. Otellini told analysts in May that the technology industry needs one data center server computer for every 600 smartphones in use and one server for every 122 tablets. “We believe we are very early in the cloud build-out and that Intel is well positioned to grow,” Mr. Otellini said. During the second quarter, revenue growth in Intel’s data center group accounted for $2.44 billion.

Wall Street analysts had said earnings would remain flat at 51 cents a share while revenue would increase 19 percent to $12.84 billion. In the same period last year, Intel earned 51 cents a share on revenue of $10.77 billion.

Mr. Otellini said he expected Intel’s revenue to grow in the mid-20 percent range for the year. Revenue will be about $14 billion, Intel said, compared with a forecast of $13.5 billion.

Intel’s gross margin, the percentage of sales excluding production costs, will be about 64 percent, up from 61 percent in the second quarter.

Intel reported that sales in its PC group rose 11 percent, in stark contrast to reports of sluggish PC shipments worldwide. The technology research firm Gartner said last week that shipments grew only 2.3 percent during the second quarter, to 85.2 million computers.

But while Intel has continually confounded skeptics forecasting gloom in the PC market, the company has come under intense criticism lately for stumbling in the market for smartphones, where some analysts worry that it may be too late for Intel to catch up. Products based on a competing chip standard, known as ARM, have quickly dominated the market. Intel is not expected to have a viable alternative on the market for several months. 

Stacy J. Smith, Intel’s chief financial officer, said on Wednesday that production of its mobile chip was on track.

The financial report was issued after the close of regular trading Wednesday. Shares of Intel closed at $22.99, then declined slightly in after-hours trading. The second quarter was the first full period that included the results of McAfee and Infineon Wireless, which Intel acquired in the first quarter. Those businesses contributed about $1 billion in revenue during the second quarter.

This article has been revised to reflect the following correction:

Correction: July 20, 2011

An earlier version of this article misstated the percentage increase in Intel’s net income as 10 percent.

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Square Feet: To Meet Demand for Chips, Samsung Bets Big on Austin

Samsung, based in South Korea, is spending billions to expand its only factory in the United States to make logic chips that analysts believe will go into many Apple iPhones and iPads. When completely finished next month, the plant will be 2.3 million square feet, one of the largest factories of any kind in North America.

Samsung, now the world’s largest maker of computer memory, has a lot riding on the plant. Analysts say the expansion will give it more space to produce chips for other semiconductor companies and help it take on contract chip companies like GlobalFoundries and Taiwan Semiconductor Manufacturing Company.

“I don’t think Samsung would ever want to be No. 2 in any market,” said Catherine Morse, the general counsel and director of public affairs at Samsung Austin Semiconductor.

After a falloff in demand for computer chips that started in 2008, the semiconductor industry roared back last year as consumers and businesses started buying more computers and mobile devices. Worldwide semiconductor sales climbed 32 percent to almost $300 billion, according to the semiconductor research firm Semico Research Corporation, and are expected to grow 2 percent this year.

As the miniaturization of circuits continues and more everyday objects incorporate computers, semiconductor companies are making chips that are found in devices as diverse as refrigerators, GPS locators and cameras.

Chip makers ramped up their global spending on land, equipment and buildings last year by 91 percent over 2009 to nearly $50 billion. This year, Semico Research predicts, semiconductor companies will invest an additional 15 percent.

The chip industry requires tremendous amounts of money. A new plant costs about $6 billion, according to the Semiconductor Industry Association, so only the largest chip makers can afford to build their own. Smaller companies team up with other companies to build a factory or have contractors make their chips.

“This is a very risky business that’s not for the faint of heart,” said Len Jelinek of the market research firm IHS iSuppli in Scottsdale, Ariz. “It’s like putting down $1 billion on the craps table. You’ve just thrown the dice and they’re in the air. You hope they land the right way and you make money.”

The semiconductor industry is an international one. Although it began in Silicon Valley, it has since gone global and many of the world’s chips are now made in Asia. Chip companies prefer to have their manufacturing scattered across the globe to be closer to customers and engineers — and to reduce risk in case of a cataclysmic event, like the recent earthquake in Japan. New and expanded plants are under construction in China, Germany, Japan, South Korea, Taiwan and the United States.

Samsung chose to expand in Austin, said Burton Nicoson, vice president of manufacturing at Samsung Austin Semiconductor, because of “the infrastructure and support system here — you can’t get that from anywhere else.”

Other draws were the city’s legacy of semiconductor manufacturing and the University of Texas, which produces large numbers of skilled engineers, Mr. Nicoson said.

“Austin has a youth about it,” he said. “It really helps us with recruiting.”

While smartphones and tablets are largely driving the semiconductor industry’s growth spurt, demand for chips for personal computers and data centers, where information is stored on thousands of servers run by companies like Google and Microsoft, remains strong. Last year 350.9 million computers were shipped, versus 289.7 million tablets and mobile phones, according to the technology research firm Gartner.

“Semiconductors are the critical components for the whole infrastructure that gets data to you quickly,” said Bob Johnson, research vice president in Gartner’s semiconductor group in San Jose.

Intel, the world’s biggest chip maker, is spending up to $13 billion to build two new factories and upgrade four others in Oregon and Arizona over the next few years. Construction began in the fourth quarter of last year and is expected to be complete in 2013.

About every two years Intel upgrades its manufacturing processes to make chips that are smaller, cheaper, more powerful and use less power. The chip giant is upgrading four plants to produce 22-nanometer chips and is building two new factories, one in Arizona and one in Oregon, devoted to 14-nanometer chips. “When you make an investment in a factory, you’re essentially placing a bet on a manufacturing process that’s not yet done, for products that are not yet designed, to sell into a market that is not yet there,” said Chuck Mulloy, a spokesman for Intel’s technology and manufacturing group.

GlobalFoundries, a contract maker of semiconductor chips, is doubling the amount of money it spends this year to $5.4 billion, from $2.7 billion, as it expands two factories in Germany and Singapore and builds a new one near Albany.

GlobalFoundries, of Milpitas, Calif., is a private joint venture between an investment company of the government of Abu Dhabi and the chip maker Advanced Micro Devices. It expects to spend more money than it makes this year as it tries to become the biggest foundry, or contract chip maker, in the world. Sales are estimated at $4 billion in 2011.

Near Albany, in Malta, N.Y., GlobalFoundries is investing $4.6 billion in a factory that will produce 28-nanometer chips for a wide variety of customers. The 1.5 million-square-foot plant will be at full production in 2013.

“The appetite for tablet computers is a huge part of this move,” said Travis Bullard, a GlobalFoundries spokesman. “We’re adding more and more capacity to meet that demand.”

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