Intel Raises Profit Margin Forecast

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Intel Corp. (INTC), the world's largest chip maker, Thursday raised the mid-point of its first-quarter revenue forecast by $200 million and boosted its profit margin target, citing lower manufacturing costs.

Shares of the company, seen as a bellwether for the technology industry, rose 2 percent in after-hours trading.

In a scheduled update, the Santa Clara, Calif.-based company said it now expects sales in the range of $9.2 billion to $9.4 billion, and a gross profit margin of 57 percent, plus or minus a point.

In January, the company had targeted first quarter sales of $8.8 billion to $9.4 billion with a gross profit margin of 55 percent, plus or minus a couple of points.

"I'm encouraged by the gross margin guidance, which is a little better than expectations," said Krishna Shankar, an analyst with JMP Securities. "Sounds like the PC business is tracking normally."

The new mid-point of Intel's revenue range is $9.3 billion, or $200 million higher than the previous mid-point.

Wall Street analysts, on average, had been expecting revenue of $9.14 billion in the quarter, which ends April 2, according to Reuters Estimates.

Intel shares rose a penny to $24.85 on Nasdaq (search), before the results were announced. In after-hours trading, the stock rose to $25.38 on Inet (search).

"It's certainly better than the street had anticipated," said Barry Randall, manager of the First American Technology Fund. "There is no disputing the revenue number, at first blush, is better than anticipated."

Intel cited two reasons for its improving profitability: lower-than-expected start-up costs for a new manufacturing technology it will introduce in products next year, and lower microprocessor unit costs. Intel did not provide a reason for the improvement in its revenue outlook.

Intel's slipping profit margins have been highlighted as a concern by some analysts. After overproducing chips last year, Intel slowed output from its factories, a move that increases per-unit chip costs and lowers profit margins.

Expectations for Intel's first quarter have been rising in recent weeks, in part because some analysts have pointed to indications that Intel's factories are busier than ever to keep up with strong demand, so much so that some companies have reported shortages of notebook PC chips in Asia.

Said Steve Neimeth, Portfolio manager at AIG SunAmerica, who oversees funds owning 200,000 shares: "It's definitely a recipe for a higher stock price."