Intel posts strong second quarter results: Sign of a recovery?

When tough times come, semiconductor companies are among the first to see their sales fall. So when a recovery comes, and PC makers begin to ramp up production of computers, chip makers are often the first to see the signs of improvement.

So the news from Intel (INTC) today could be good news for the economy. The company, which released its second quarter results after the market closed today, beat Wall Street estimates, reporting revenue of $8 billion (beating the Street's expectation of $7.28 billion) and non-GAAP profits of $1 billion, or 18 cents per share (Wall Street had expected earnings of eight cents per share.) These numbers do not include a $1.45 billion antitrust fine from the European Union. If you take that into account, on a GAAP basis, the company actually posted a net loss of $398 million, or 7 cents per share. Gross margins were also strong, at 50.8 percent.

The news from Intel is welcome relief. Just yesterday, Dell (DELL) announced disappointing earnings, dampening any hopes of a recovery. While Dell tried to put a positive spin on its earnings announcement, predicting that sales have stabilized and that there may be a slight increase in sales in the next quarter, the company said that the market for technology remains tough and that component prices from suppliers are high. As a result, profit margins were squeezed.

Intel's stronger-than-expected earnings come partly to strength in revenue of its Atom microprocessors and chipsets, which generated $362 million in revenue, up 65 percent from the prior quarter. The atom processors are used in netbooks, which have been strong sellers recently. They also reflect an improving market. While sales of personal computers have fallen swiftly during the recession, Intel has been saying, recently, that it believes a recovery is beginning.

Looking ahead, Intel is moving into new markets, making it less dependent on personal computer sales. The company recently announced a collaboration with the Finnish telecom company Nokia (NOK) which should bode well for the company as it creates mobile products with "Intel Inside."

Keep in mind that good news from Intel could mean good news down the road for companies such as Dell, Microsoft (MSFT) and Hewlett Packard (HPQ) as they upgrade their operating systems to Windows 7 and turn to Intel for more processors.

Intel says that looking forward to the third quarter, revenues should come in around $8.5 billion, with gross margins of 53 percent.

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