Intel Short on Inspiration

Updated from 4:37 p.m. EDT

Intel(INTC) beat Wall Street's bottom-line target as the semiconductor bellwether said demand for laptop computer chips is strong, although shares fell after hours as investors zeroed in on gross margins and sales.

Gross margins for the quarter came up a bit shy of hopes -- 56.4% vs. an expectation of 57%, and the company didn't lift its full-year margin targets. Shares recently dropped 2.4% to $28.02 on Instinet in late trading after ending the regular session up 1.7% to $28.71.

"The stock was priced to perfection," said analyst Apjit Walia of RBC Capital Markets, adding that it would have taken an exceptional quarter and very bullish targets to drive the stock further. He acknowledged second-quarter revenue and margins could have been better, but he remains optimistic about the third quarter based on Intel's current targets.

For the quarter ended July 2, Intel reported net income of $2 billion, or 33 cents a share, on sales of $9.23 billion. During the same quarter last year, Intel earned $1.76 billion, or 27 cents a share, on sales of $8.05 billion. Intel's bottom line was helped by a 2 cent-a-share benefit for the reversal of previous tax accruals.

Analysts had expected earnings of 32 cents a share on sales of $9.22 billion, on average, according to Thomson First Call.

During a midquarter update in early June, Intel boosted its sales target to between $9.1 billion and $9.3 billion and gross margins to around 57%, up from earlier targets for sales of $8.6 billion to $9.2 billion and margins around 56%.

At that time, Intel said results were tracking seasonal expectations, with an upside in notebooks. Also, Intel said its bottom line would benefit from a reduced tax rate of 26% and gains from equity investments and interest around $100 million.