Updated from April 15SAN FRANCISCO -- Intel ( INTC) profit narrowed in the first quarter, but the chipmaker posted sales that were slightly ahead of Wall Street expectations and rebutted fears of a tech spending slowdown with a strong sales outlook for the current quarter. Intel said its new line of chips for high-end servers enjoyed brisk demand during the quarter, particularly in the North American market. And the company said shipments of mobile processors were up sharply year over year, with Intel now expecting notebook chips to outpace desktop chip shipments this year instead of in 2009. "Our first-quarter results demonstrate a strengthening core business and a solid global market environment," said CEO Paul Otellini. In a conference call with analysts following the earnings report, Otellini said the company wasn't feeling any impact from shifting macroeconomic conditions. And despite fears of a slowdown in the U.S. and Europe, Otellini said Intel's experience to date in those regions has been just the opposite. "The two most mature of our markets are not showing any signs of weakness," he said. In early premarket trading Wednesday, Nasdaq futures were 23 points higher and Intel shares were trading at $22.50. Shares of Intel rose 7.8%, or $1.64, to $22.50 in extended trading Tuesday. Intel's results offered a bit of reassurance to investors worried about the state of the global economy amid a worsening credit crisis and fears that sales of PCs and servers featuring Intel chips might slow down. Still, Intel's results were hardly phenomenal. The chipmaker earned $1.4 billion, or 25 cents a share, vs. $1.63 billion, or 28 cents a share, in the year-ago period. Analysts polled by Thomson Financial were looking for 25 cents a share. Intel said it incurred $329 million in restructuring and impairment charges, primarily due to the spinoff of its NOR flash memory business in a newly formed joint venture with STMicroelectronics ( STM) dubbed Numonyx. Revenue of $9.67 billion was slightly above the average analyst expectation of $9.63 billion, but worse than what Intel typically achieves at this time of year: Sales were down 10% sequentially, vs. the 7% sequential decline that Intel has previously described as seasonal for the first quarter. American Technology Research analyst Doug Freedman said the worse-than-seasonal sales results might be due to lower prices for Intel's products. Intel acknowledged that average selling prices for notebook PC processors declined in the quarter, due to the rising popularity of low-cost consumer notebooks. And Intel reduced the price of its server processors back when it expected rival Advanced Micro Devices ( AMD) to have a more competitive product on the market, said Freedman. "That pricing was set when they thought Barcelona was coming," Freedman said, referring to AMD's quad-core server chip. AMD finally began shipping the Barcelona chip for general availability earlier this month -- eight months after it initially introduced the chip -- due to a bug that affected its performance. AMD, which cut its sales estimate last week, is due to report its first-quarter earnings on Thursday. Intel's gross profit margin in the first quarter was 53.8%, four percentage points lower than in the fourth quarter. Intel had initially forecast gross margin of 56%, plus or minus a couple of points, but lowered its outlook in March, citing the plunging prices of NAND flash memory chips, which Intel produces in a joint venture with Micron ( MU). Otellini reiterated his commitment to prevent the NAND flash business from acting as a "long-term drag" on the company, and said Intel had already taken some steps to improve the business' financials, such as delaying the build-out of a flash memory chip factory in Singapore.
"We entered this business to make money and we'll continue to make the appropriate decisions necessary to that end," he said. Asked whether Intel would consider exiting the NAND business altogether, Otellini declined to comment. Intel projected that gross margin in the current quarter would be 56%, plus or minus a couple of points, and maintained its previous guidance of 57% margins for the full year. Sales in the current quarter will range between $9 billion and $9.6 billion, Intel said. Wall Street was looking for $9.25 billion in second-quarter sales with EPS of 28 cents.