Intel Shares Fall Despite Better Outlook

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Intel Corp. (INTC) shares fell 2.6 percent Friday after the company tightened its first-quarter sales and gross margin forecasts to the high end of its previous estimates, crediting stronger-than-expected demand for its chips and lower startup costs associated with a new technology.

Intel said after the markets closed Thursday it now expects first-quarter sales to be between $9.2 billion and $9.4 billion. In January, the company predicted revenue of between $8.8 billion and $9.4 billion. The company does not provide earnings guidance.

The new estimate exceeds Wall Street expectations for the period ending April 2. Analysts expect the Santa Clara-based company to earn 28 cents per share on sales of $9.15 billion, according to a survey by Thomson First Call.

Intel shares fell 65 cents to close at $24.20 on the Nasdaq Stock Market as an early rally in the shares evaporated. Its shares have ranged from $19.64 to $29.10 over the past 52 weeks.

Andy Bryant, Intel's chief financial officer, said demand for Intel's chips was better than expected around the world. Still, he said the financial performance was in line with historical patterns.

"Our outlook anticipates a seasonal quarter toward the better end of our forecasts," he said.

Intel's gross margin — the closely watched difference between sales and the cost of the products sold — is expected to be about 57 percent, compared with the previous forecast of 55 percent plus or minus "a couple points."

"There's a better end-demand scenario, better utilization rates and, of course, the costs were lower than they expected," said Apjit Walia, an analyst at RBC Capital Markets. "There was a multitude of reasons that sent the margins higher."

Intel's strong financial performance continues even after it faced numerous product delays, outright cancellations and criticism for letting smaller rival Advanced Micro Devices Inc. (AMD) take the lead on some technological fronts.

That appears to be changing in 2005. Just a few months into the year, the maker of the Pentium 4 chip (search) has released a number of processors that can address more memory than previous generations and maintain full compatibility with older software. AMD has been offering such a chip since 2003.

Intel and AMD also are in a race to release their first processors with two computing engines on a single chip. That's expected to improve performance when multiple programs are running on a system at once or when a single program is designed to take advantage of it.

Notebooks based on Intel's Centrino wireless technology (search) also have seen strong acceptance by both businesses and consumers. AMD formally launched its Turion mobile processors on Thursday, though it's unclear how competitive the model will be against Centrino's long battery life.

Intel's performance also bodes well for the rest of the semiconductor industry, which has been slumping since last year.

"Intel has had two quarters of good numbers. When Intel's margins bottom, which they look like they have right now, it usually means the sector is seeing some growth," Walia said.