Intel Jumps After Forecast Tops Estimates, Bolstering Rally

Oct. 14 (Bloomberg) -- Intel Corp. rose as much as 6.9 percent in late trading after its sales forecast beat estimates by as much as $1 billion, setting the stage for a broader recovery in technology earnings.

Intel, the world’s biggest chipmaker, predicted fourth- quarter revenue of as much as $10.5 billion this quarter, topping the $9.5 billion average estimate in a Bloomberg survey. The company’s gross margin -- a measure of profitability -- may reach the highest level this decade.

“This is an incredibly important report for the market,” said Michael Shinnick, who helps manage $6 billion in assets at South Bend, Indiana-based Wasatch Advisors Inc. His firm owns both Intel and Microsoft Corp. shares. “Tech has been the area of leadership for the overall equity market this year.”

The Nasdaq Composite Index, which gets most of its value from technology and phone companies, has climbed 36 percent this year, almost double the gain of the Standard & Poor’s 500 Index. Investors are betting that sales of computers, software and communications will rebound faster than other products. Intel may help prolong the rally as International Business Machines Corp. and Google Inc. prepare to report their earnings tomorrow.

Intel climbed as much as $1.41 to $21.90 in extended trading yesterday. The shares, which reached a 52-week high yesterday, are up 40 percent this year on the Nasdaq Stock Market.

Growth Forecast

Chief Executive Officer Paul Otellini reiterated that the personal-computer industry may grow this year, countering the predictions of analysts. Asian shoppers are helping lead the rebound, Intel said. Gartner Inc., a research firm in Stamford, Connecticut, has projected a decline in global PC shipments of 2 percent to 285 million.

Intel, whose chips power more than 80 percent of the world’s PCs, kicked off two weeks of earnings by big U.S. technology companies. The use of Intel’s chips in everything from laptops to supercomputers makes it a bellwether for the industry.

Intel’s gross margin, the percentage of sales remaining after the costs of production, was 58 percent in the third quarter. That compared with a prediction of about 53 percent.

This quarter, the margin will widen to 62 percent, give or take 3 percentage points, the company said. The top end of that range would be Intel’s highest level of profitability this decade. The previous peak was 63.9 percent in the fourth quarter of 2000, according to Bloomberg data.

‘Healthy Sales’

“What we saw in the third quarter was healthy sales in the back-to-school season, healthy sales in China, and we saw the worldwide supply chain putting in place what I term is a healthy level of inventory,” Chief Financial Officer Stacy Smith said yesterday in an interview. “We saw the market cooperating. We started to see a recovering PC market.”

Intel, based in Santa Clara, California, isn’t seeing any excessive buildup of inventory and wants to increase its stockpiles of unused parts to handle fourth-quarter demand, Smith said.

Third-quarter sales and earnings trounced estimates, even though the company raised its forecast for the period two months ago. Net income fell 7.8 percent to $1.86 billion, or 33 cents a share, from $2.01 billion, or 35 cents, a year earlier. Sales dropped 8.1 percent to $9.39 billion. Analysts had estimated earnings of 27 cents a share and revenue of $9.05 billion.

“The market had set very high expectations for this quarter, and the company delivered,” said Bill Kreher, an analyst at Edward Jones & Co. in St. Louis. He doesn’t own the stock and rates it a buy. “As demand comes back, the factories can start running at higher capacity levels. And this flows straight to the gross margin line.”