Intel Stocks Climb After Outlook Raised

Intel Corp.'s (INTC) shares climbed 6 percent Friday after saying its fourth-quarter sales are on track to break a company record because demand for the chips that power computers was stronger than originally expected in the weeks leading up to the holiday buying season.

Shares of Intel, the world's largest semiconductor company, were up $1.37, to $24.08 on the Nasdaq Stock Market (search).

After the markets closed Thursday, Intel estimated its sales will be between $9.3 billion to $9.5 billion for the three months ending Dec. 25. That compares with its previous fourth-quarter forecast, announced in October, of $8.6 billion and $9.2 billion.

Following its regular practice, the company did not release earnings estimates.

Analysts were expecting the maker of Pentium chips (search) to earn 28 cents per share on sales of about $8.97 billion, according to a Thomson First Call survey conducted before the update.

If Intel meets the midpoint of its latest forecast, it would mark an improvement of 11 percent from the third quarter and 8 percent from the fourth quarter of last year. Over the past five years, fourth-quarter revenue growth over the third has averaged 8 percent.

"This revenue guidance would yield a record quarter and a record year," said Andy Bryant, Intel's chief financial officer.

He credited the Intel Architecture Group for driving the growth in sales. The division is responsible for the microprocessors used in personal computers and servers as well as the supporting chip sets that connect the chips to other parts of the system.

The improved outlook stands in contrast to a string of project cancelations, product delays and other execution problems in recent months. Though Intel remains healthy, the changes have rattled investors who have sent the company's stock down nearly 30 percent this year.

In recent quarters, the chip-maker also has struggled with growing inventories and sagging margins because of lighter-than-expected demand for its most profitable chips and stronger sales of its less profitable products.

"Intel continues to make progress on inventory reduction and expects a net inventory decrease of several hundred million dollars by the end of the quarter," according to a statement released by the company.

Still, estimates of gross margins — the difference between sales and the cost of the products sold — didn't change much from previous forecasts. In October, Intel said its gross margin percentage would be 56 percent plus or minus "a couple" of percentage points.

On Thursday, that estimate was narrowed to between 55 percent and 57 percent, a range that was under pressure by inventory revaluations and reserves, Bryant said.

At the same time, its chief microprocessor rival, Advanced Micro Devices Inc. (AMD), has made its biggest gains in revenue market share since 2002, according to a recent report by Shane Rau, an analyst at the research firm IDC. Intel, however, continued to grow its unit market share over AMD in the first nine months of 2004.

Other analysts agree AMD appears to be gaining in the race for high-end customers with offerings such as the Athlon 64.

"Interestingly, industry contacts suggest that AMD has gained its power base on the tech-savvy West-East coast — the electoral Blue — where change first manifests and, parenthetically, where Apple also does best," Caris & Co. analyst Rick Whittington said in a research report.

Intel will report its full fourth quarter and year-end results on Jan. 11.