Technology bellwether Intel (INTC) blew past Wall Street expectations Tuesday, reporting the best quarter in its 42-year history on strong corporate IT demand. The chip giant's results give investors a cause for optimism heading into the third quarter.
The powerful performance by the world's largest microchip maker offers further evidence that consumers and companies continue to increase their tech spending, a necessary step for economic recovery.
After waiting on the sidelines during the recession, businesses appear to be upgrading their systems -- the "IT refresh" that analysts have been waiting for.
Business Spending Returns
"Corporations are now buying in addition to consumers," Paul Otellini, Intel president and CEO said on a post-report conference call.
Intel shares soared 7.5% after the results were announced. Fellow chip company Advanced Micro Devices (AMD) also jumped 5% on the news. Texas Instruments (TXN) climbed nearly 2%.
"These results were really solid across the board," said Gleacher & Co. analyst Doug Freedman. "Corporations are spending on IT again, and they're spending more than anyone expected, so this is a real positive for the industry."
Big Gains on Global Momentum
On a conference call with analysts, Otellini said that countries around the world continue to gain economic momentum, since the worst of the recession last year. "Every geography was up above our seasonal norm," Otellini said.
For the second quarter, Intel reported net income of $2.9 billion, or 51 cents per share, handily beating analyst expectations of $2.4 billion, or 43 cents per share. Overall revenue rose 34% to $10.8 billion, topping analysts' forecast of $10.25 billion.
Intel said gross profit margin -- a key measure of efficiency -- was 67%, nicely beating the company's forecast of 64% and dramatically higher than 50.8% one year ago.
The company reported record revenue from chips used in mobile phones as well as corporate data centers. "The PC and server segments are healthy and the demand for leading-edge technology will continue to increase for the foreseeable future," Otellini said.
Microchip Revamp Coming
Intel is preparing to launch a next-generation redesign for its microchip line, code-named Sandy Bridge, which aims to boost processor speeds while using less power. The tightly guarded redesign -- Intel revamps its chip line every two years -- has been a source of intense interest in tech circles.
"I'm more excited about this than I've ever been about any of our products," Otellini said of Sandy Bridge. Intel expects to generate revenue from the new design by the end of the year, he said, adding that the company would share more details at September's Intel Developer Forum in San Francisco.
Looking ahead to the third quarter, Intel forecast revenues of $11.2 billion to $12 billion, well above than analysts' expectations of $10.9 billion.
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