Otellini: Intel second half signals 'increased confidence'
Recently, a number of prominent business people and investors have suggested that the economy is still in poor shape, with no quick improvement on the horizon. It should make ears stand up, then, when the earnings release from a cyclical company proclaims their strongest first half performance in more than two decades.
That's exactly what computer chip-maker Intel (INTC) did. The company topped estimates as its shares rose more than 12 percent on the week. As CEO Paul Otellini said, "Intel's second-quarter results reflect improving conditions in the PC market segment with our strongest first- to second-quarter growth since 1988 and a clear expectation for a seasonally stronger second half."
Upon learning of Intel's bullish outlook, DailyFinance's Nikhil Hutheesing noted, "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."
The results are all the more impressive considering that the personal computer business is in flux, as lower consumer spending pushes demand for smaller and less-costly netbooks. Sales of Intel's Atom brand of processors, designed for netbook and mobile computing, were up 65 percent from the prior quarter. Excluding a $1.45 billion fine leveled by the European Commission relating to practices used to take market share from competitor AMD, Intel reported earnings of $1 billion, or $0.18 per share, on $8 billion in revenue. Analysts had expected an EPS of $0.08.
During the conference call discussing results, Otellini stated, "Our second quarter results were clearly better than we expected, with demand strengthening throughout the quarter. While the global economic environment is still recovering, our customers signaled increased confidence for a seasonal second half with their ordering patterns... Globally we saw strength in Asia-Pacific, particularly China, where their stimulus programs continue to generate meaningful growth in their PC market. The U.S. also had a strong quarter, while Europe's recovery lagged that of the U.S. and China."
In further discussing demand differences across geographies, CFO Stacy Smith added, "What you see in this quarter is [that] Asia-Pacific is stronger than the rest of the world. . . [that's] partially a function of some real strength we're seeing in China"
Whether the rest of the world is coming along or not, the analyst community loves what they hear: earnings expectations for Intel in the second half of the year are up 25 percent this week.
James Cullen also edits and writes at CollegeAnalysts.com. He has no personal position in the stocks mentioned above.