Intel's Confident of a Revenue Recovery, but Hedges in Case

Updated from 4:42 p.m. EDT

Intel (INTC - Cramer's Take - Stockpickr) is increasingly confident that a long-sought-after microprocessor recovery will take place in the third and fourth quarters.

Too bad its guidance isn't quite so definitive.

Intel, which Tuesday met Wall Street's second-quarter earnings target and projected third-quarter numbers in line with estimates, made its most brazen call yet on the second half during its conference call.

"As we look ahead to 2001, we're comfortable that the Intel architecture business has returned to seasonal patterns and will show more strength in the second half. Our other businesses remain soft," said CFO Andy Bryant.

But Bryant's third-quarter estimate range was an unusually large $600 million -- wider even than the range given for the second quarter -- making it unclear exactly how certain this recovery is. Bryant said that he had assigned such a wide range to revenue because of the current environment.

Intel says it has the backlog of orders and the history of seasonal buying patterns to back up its forecast. It plans to dramatically increase shipments of Pentium 4 in the second half for personal computers that cost $800 or more, at the same time that back-to-school buying and the launch of Microsoft's XP operating system kick in.

However, even with Intel's plans to lower prices in a bid to increase market share, it's still too soon for it to say for sure if that buying will occur.

The big semiconductor company reported second-quarter operating earnings, excluding acquisition-related charges, of 12 cents a share, down from 50 cents a year ago. Revenue fell 24% from a year ago to $6.3 billion. Analysts surveyed by Thomson Financial/First Call had expected the company to make 10 cents a share on revenue of $6.3 billion.

Intel forecast third-quarter revenue of $6.2 billion to $6.8 billion, in line with analyst forecasts. The company said third-quarter gross margins would be squeezed slightly by an ongoing price war with rival chipmaker Advanced Micro Devices (AMD - Cramer's Take - Stockpickr) as average selling prices continue to decline.

Summing up the second quarter, Intel said its microprocessor business performed better than expected with sequential growth in units, while the communications and flash businesses remained soft. TheStreet.com earlier noted that chip shipments would be a key indicator of the industry's health in coming quarters.

Cut-rate pricing aimed at gaining back market share lost to AMD's Athlon and Duron chips during the first quarter appears to be hurting Intel's margins. The company reported margins of 48% in the second quarter and said that third-quarter margins would slip further to 47%. The company had also told analysts to expect margins of about 49%, plus or minus a couple of points. It lowered guidance for 2001 margins to 49% from the 50% it had previously indicated.

On June 7, Intel told analysts to expect second-quarter revenue slightly below the midpoint of the $6.3 billion to $6.8 billion range it had projected back in April. At that time, Intel also said it believed that its microprocessor business, which has been contracting for three quarters due to oversupply, had returned to normal seasonal patterns.

Intel shares were mostly flat in after-hours trading, hitting $30 on Island after closing at $29.90 in regular action.