Intel Taken to the Limit

Despite Intel's(INTC) touting of its second-quarter results, the sharp run-up in the company's shares stalled Wednesday as investors fretted that the world's largest chipmaker had maxed out its capabilities.

Intel CFO Andy Bryant said as much during the company's conference call late Wednesday. "I've got my factories running full-out right now," he noted.

Intel shares recently dropped 6.1% to $26.96 Wednesday, after hitting a 52-week high on Tuesday.

Capacity is tight at Intel, especially for trailing-edge products such as chipsets and flash memory, which together account for almost 20% of sales. Logic microprocessors, too, are tight.

"We're losing some [chipset] revenue we could have had if we'd had a little more capacity," Bryant said on Tuesday.

Intel reported second-quarter earnings of 33 cents a share on sales of $9.23 billion, essentially in line with analysts' expectations of earnings of 32 cents a share on sales of $9.22 billion. "This was a good second quarter, a period when business is typically slow," Bryant said. "The momentum of the first half appears to be continuing as we enter the second half."

The company cited mobile processors as a driver of its results and noted that its dual-core chip ramp is proceeding according to plan and that a refresh of its Xeon server chip line will likely happen ahead of schedule.

However, for all of those positives, inventory declined in a period when it was expected to slightly increase, and the company didn't boost its gross margins for the rest of the year. The latter was a hope that many investors had bet on, driving up the stock almost 30% since mid-April.

Inventories slipped $69 million to $2.7 billion in the second quarter. "Inventories are leaner than I would like," Bryant said. "It will be a challenge to make significant progress in building inventory at the current level of demand."