Intel Posts Big Profit Jump as Demand for Chips Grows

Worldwide demand for microprocessors continued to climb in the first quarter, and Intel Corp. took that to the bank.

The world’s biggest computer-chip maker said Tuesday that its first-quarter profit nearly doubled, reaching $1.73 billion, or 26 cents a share, up 89% from $915 million, or 14 cents, a year earlier. And revenue rose 21% to $8.1 billion from $6.8 billion.

But after closing up 7 cents at $27.67 on Nasdaq, Intel shares fell 41 cents to $27.26 in after-hours trading, following the earnings announcement. Investors had hoped for a more upbeat forecast for the current quarter from the Santa Clara, Calif.-based company.

Intel executives, however, were fairly positive.

In the second quarter, they said, revenue would be $7.6 billion to $8.2 billion, which would make it the third consecutive quarter of strong growth. In the fourth quarter of 2003, profit more than doubled to $2.2 billion.

Chief Financial Officer Andy Bryant told analysts that the company had made “superb progress” in improving gross profit margins.

In the first quarter they increased to 60.2% from 52% a year earlier and could be more than 60% in the second quarter.

Intel’s chips power 80% of the world’s personal computers, and the continued growth in sales reassured some analysts that the recovery in technology spending may be gathering strength.

“We’re comforted by their guidance,” said Jonathan Lau, an analyst in New York with Banc of America Securities, which does investment banking with Intel.

“There were a lot of concerns about the PC market, but their guidance indicates a seasonally normal quarter, which a lot of people will be comforted by.”

Said Tai Nguyen, a San Francisco-based analyst with Susquehanna Financial Group: “The indications this year are very strong for the PC market. It looks like the first and second quarters are on the high end of seasonality, so Intel will be entering the second half on a very strong note.”

In the first quarter, Intel benefited from a new manufacturing process that made producing chips cheaper. Semiconductors are now produced on wafers that are 300 millimeters wide, up from the previous-generation 200-millimeter wafers, Nguyen said, and the process can pack more than twice as many chips onto a single disk.

Intel’s main business division, computer processors, saw revenue rise to $7 billion from $5.8 billion in the first quarter, with operating profit increasing to $3 billion from $1.9 billion.

But the communications group, which lost $858 million last year, continued to wrestle with its memory-chip business. Its operating loss in the first quarter widened to $219 million from $218 million, although revenue increased to $1 billion from $963 million.

Intel will work steadily on improving the performance of the communications group, Bryant said.

“You go through all the investments you’re making and make sure you stop investing in areas of low return,” he said, adding that the company also will work harder to get more flash memory chips into the marketplace and continue to invest in manufacturing technologies.

“I’ll be disappointed if we don’t show consistent quarter-by-quarter progress toward profitability.”