Intel profit jumps 44% despite price war

Intel said its quarterly profit rose 44% over last year, reaching US$1.3bn as low selling prices for its microprocessors were offset by higher than expected unit shipments.

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Chip maker Intel’s quarterly profit rose 44% last year, reaching $1.3bn (£634m) as low selling prices for its microprocessors were offset by higher than expected unit shipments.

The results came despite an ongoing price war as Intel and rival AMD struggled for larger shares of the processor market. Both companies have been cutting prices on their chips as they upgrade their products from standard chips to dual-core and quad-core processors.

Intel is also in the final stages of a corporate reorganisation that included the layoffs of thousands of workers in 2006, and at least 1,800 more layoffs are planned for August. The company incurred restructuring charges of $82m (£40m) during the most recent quarter as it continued to adjust to the changes.

Despite those challenges, Intel earned $0.22 per share on revenue of $8.7bn (£4.2bn) for the quarter to 30 June, beating Wall Street expectations, according to analysts polled by Thomson Financial. Intel also beat its own mark from the second quarter of 2006, when it earned $0.15 per share on revenues of $8bn.

Intel chief executive Paul Otellini said one factor in Intel's favour this quarter was the launch of its upgrade to the popular Centrino notebook PC platform in May. The vendor bundled an improved processor, chipset and wireless card to maintain its large share of the fast growing notebook market segment.

The company also saw strong sales for its quad-core Xeon server chips, although the company suffered from competitive market prices in low end consumer PC sales, according to Otellini. It also had mixed results in flash memory chips, where it generated strong revenue from NAND chips but NOR flash chip sales were weaker than expected.

Those flash memory results helped to push Intel's gross margin down to 46.9% for the quarter, lower than the company's goal of 48%.

Intel chief financial officer Andy Bryant predicted the company would quickly rebound in the third quarter, forecasting a gross margin of 52% and revenue between $9.0bn and $9.6bn (£4.4bn and £4.7bn). If Intel met the top end of that goal, it would match the Wall Street estimate of $9.36bn and would beat its own revenue mark of $8.74bn for the third quarter last year.

Intel faces some tough challenges in the rest of 2007, because it plans to launch its new Penryn desktop chip design just as AMD launches a comparable Phenom chip. Both products will reach PC vendors during a tough time in the semiconductor market.

Earlier in the month, it emerged that Intel had new investments planned, including spending $219m (£108m) on a stake in virtualisation firm VMware.

In May, analyst firm Gartner cut its 2007 revenue growth forecast for the semiconductor market to 2.5% from an original estimate of 6.4% growth over 2006 levels. Gartner assigned part of the blame to the price war between Intel and AMD, as well as to plunging prices for dynamic RAM (DRAM) memory chips.

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