K.C. Swanson

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Intel Sets 52-Week High as Earnings Impress

K.C. Swanson

Intel(INTC) was up 3% after setting a 52-week high earlier Wednesday as investors welcomed its blowout third-quarter earnings report.

Intel's shares were recently up $1.03 to $32.11 after topping out earlier in the session at $32.78, eclipsing the old 52-week peak of $31.10.

After the bell Tuesday, the microprocessor giant reported third-quarter revenue of $7.83 billion, 20% above last year's levels and higher than analysts' expectations for $7.69 billion. Net income of $1.7 billion translated into earnings per share of 25 cents, more than double last year's 10 cents and 2 cents a share above expectations.

Merrill Lynch Wednesday raised its price target to $40 from $32 and said the stock looks significantly undervalued at 26 times Merrill's new 2004 estimate of $1.20 a share, up from its previous $1 a share. Merrill thinks the company will enjoy stable prices and little competition from Advanced Micro Devices (AMD) (AMD).

A $40 price would value Intel at over 50 times consensus 2003 earnings of 77 cents and at 38 times consensus 2004 earnings estimates of $1.06.

On Tuesday's conference call, CFO Andy Bryant said Intel had posted the best third-quarter sequential growth in more than 25 years. Results got a boost from strong growth in emerging markets such as China and India and healthy consumer buying in the U.S.

"Our resolve to invest aggressively during the downturn is paying off with double-digit revenue growth and a doubling of profit compared to a year ago," said CEO Craig Barrett.

The company said it believes it gained about a point of market share in microprocessors in the third quarter and several points in chipsets. Average selling prices grew slightly, helped by growth in mobile and server units.

"Computing continued to improve in the emerging markets, western Europe, Japan and the U.S. consumer channels. However, there was only modest growth in PCs in the U.S. corporate segment," said Bryant on the call.

Fourth-quarter revenue is expected to range from $8.1 billion to $8.7 billion, putting the midpoint past the high end of analysts' expectations for $8.3 billion in sales. Projected fourth-quarter growth of 17% would be the highest since 1998, said Bryant.

Courtesy of the higher revenue, Intel expects fourth-quarter gross margins in the range of 60%, up from the third quarter's 58.2%.

Intel doesn't offer EPS guidance, but Wall Street was looking for 26 cents in the fourth quarter leading up to today's report.

Third-quarter unit shipments in Intel's flagship microprocessor unit set a record, with sales up 17% from the prior quarter and 26% from the same quarter last year.

Outside its flagship microprocessor arm, Intel saw sales in its wireless unit decline 23% from the prior year, while its operating loss grew to $124 million from $30 million. That division, which consists almost entirely of flash, has been suffering ever since Intel hiked prices earlier this year.

Sales of communications chips grew 12%, while the loss narrowed from $177 million to $94 million.

Based on Tuesday's outlook, Intel said it expects to end the calendar year with revenues of around $30 billion, up between 10% and 12% from last year. Gross margins should average about 55% to 56%.

The company today narrowed its capital spending range to $3.6 billion to $3.7 billion, compared to the previous expectation of $3.5 billion to $3.9 billion.

The stock rose 2.7% or 85 cents in after-hours trading on the news, reaching $31.93. Ahead of the postclose report, Intel shares rose 28 cents to $31.08. The stock has nearly doubled in just six months as investors have anticipated the re-emergence of information technology spending by corporations.