Intel Corp. Expects Strong 4th Quarter

Intel Corp. said it expects fourth-quarter sales and gross margin to beat third-quarter levels on increased new orders and strong holiday personal computer sales.

Sales will be “significantly” higher than the $5.14 billion in the third quarter, while gross margin will be wider than the quarter’s 57%, Intel said.

Intel is expected to report fourth-quarter earnings of $1.61 a share based on the average estimate of 29 analysts surveyed by IBES International Inc. Net income was $867 million, or 98 cents, on sales of $4.58 billion in the year-ago fourth quarter.

Intel released its projections after the defeat of Proposition 211, a California ballot initiative that aimed to make it easier for shareholder suits and held companies and their directors personally liable for damages.

While Intel’s projections don’t differ much from what analysts expected, the information makes investors more comfortable owning the stock, said Bob Finch, at analyst at Aeltus Investment Management. The Hartford, Connecticut-based money-management firm owns more than 1 million Intel shares.

“It gives people confidence that last quarter’s very high margins weren’t a fluke,” Finch said. Gross margin is the percentage of sales remaining after the costs of manufacturing are subtracted. Intel’s gross margin has traditionally been in the low to mid-50% range.

Intel’s stock rose 4 7/8 to 118 7/8, an all-time high on a split-adjusted basis. Trading of 13.9 million made it the second-most-active U.S. stock.

Intel’s board is scheduled to meet next week, and Chief Financial Officer Andy Bryant said a stock split is something that directors might consider. “The board I’m sure will have discussions about stock splits,” Bryant said.

Intel’s last split was in April 1995 when the stock was trading just over 100 on a pre-split basis. The company also at that time raised the dividend by 33% to 4 cents a share from 3 cents a share.

There has been some concern in recent weeks that PC demand was weaker than expected going into the traditionally strong holiday sales period. CompUSA Inc. stock plunged last week after analysts said home computer sales at retailers were sluggish.

“Intel is doing a lot better than its customers,” said analyst Stephen Dube of Wasserstein Perella Securities.

Intel’s rosy outlook indicates that PC makers are still expecting a strong December quarter because they are ordering lots of chips. Intel’s microprocessors are used in nearly 85% of the world’s personal computers.

Still, that has some analysts concerned that the first few months of 1997 could be a repeat of this year, when computer makers were stuck with excess inventory because holiday sales weren’t as strong as expected, Dube said.

Intel said that it watches for that kind of situation closely, and hasn’t seen any evidence of inventories getting too big. The chip maker also said that retail sales in the U.S. are a small part of the total picture.

Finch said there was speculation that Intel might make an announcement in the wake of the failure of Proposition 211. “They were the first ones to make a big deal of 211,” he said. “Here’s your reward.”

Intel, along with most other Silicon Valley companies, vehemently opposed the measure, saying it would prevent them from making forward-looking statements and subjected them to increased costs from legal wrangling. Intel canceled its analyst meeting scheduled for last week because of the initiative.

The company had said that if 211 was defeated it would “resume normal communications” with analysts and investors, said spokesman Howard High.

Intel also said expenses are expected to rise about 17% to 20% in the fourth quarter from the $1.01 in the third quarter.