SAN FRANCISCO -- Intel's ( INTC) business held up amid the global financial turmoil that marked the close of the third quarter, but the chipmaker warned that the road ahead was getting bumpy. "As we look to Q4, it is hard to know what impact the financial crisis will have on end customer demand," CEO Paul Otellini said in a statement Tuesday. The Santa Clara, Calif., chipmaker said sales in the last three months of the year will range between $10.1 billion and $10.9 billion, a range that barely meets the $10.8 billion expected by analysts. The company said it was providing a sales range that is wider than typical on account of the recent economic uncertainty and the various potential outcomes. Yet even the best outcome -- with Intel achieving the high-end of the range -- translates to weaker-than-normal sales growth for the fourth quarter. Shares of Intel were up 57 cents at $16.50 in extended trading, following a decline of more than $1 in regular trading Tuesday. While Intel had characterized demand for all of its products as strong back in July, Otellini said Tuesday that corporate spending on technology began to weaken in September and will continue to be soft in the months ahead. And cracks are appearing in consumer demand for PCs as the industry prepares for the all-important holiday sales season. "In general consumer traffic overall is light at this point in the quarter, but we do see continued healthy interest in notebooks and netbooks," Otellini told analysts in a post-earnings conference call Tuesday.
Intel's microprocessors for mobile PCs provided the main engine of growth in the third quarter, with sales up 19% year-over-year. Intel's Atom processor -- a new chip designed for inexpensive netbook PCs -- delivered its first significant contribution to Intel's business, with $200 million in revenue. More importantly, the Atom chip didn't drag down Intel's profit margins, as some observers feared it might. Stacy Smith, Intel's finance chief, said the Atom's gross profit margin is proving to be on par with that of the Celeron chip -- the processor that Intel currently sells for the cheapest laptop PCs. As a result, he said, the risk of PC makers using Atom chips not only in netbook models, but in low-end laptops as well, won't hurt Intel's bottom line. For the three months ended Sept. 27, Intel earned $2 billion, or 35 cents a share, compared to $1.79 billion, or 30 cents a share, a year earlier. Intel's EPS, which was helped by a lower-than-expected tax rate, was a penny higher than the average analyst estimate according to Thomson Reuters. The chipmaker boosted its gross profit margin to 58.9% from 55.4% in the third quarter, thanks to lower costs and a higher portion of microprocessor sales in its revenue. Intel projected gross margin in the current quarter of 59%, plus or minus a couple of points. While the average selling prices of its microprocessors were down sequentially in the third quarter on account of the Atom chip, Intel said it had record unit shipments of microprocessors and chipsets.
Third-quarter sales increased a modest 1% year-over-year to $10.2 billion. The average analyst expectation called for revenue of $10.26 billion. Intel incurred a greater-than-expected charge of $265 million in the third quarter relating to its joint-venture with ST Microelectronics ( STM) producing NOR flash memory chips. And the company said it will have an additional $250 million of restructuring charges in the current quarter from a separate joint venture, producing NAND flash memory, with Micron ( MU). Asked about rival Advanced Micro Device's ( AMD) recently announced plans to spin off its manufacturing assets, Intel executives said that Intel remains committed to an integrated manufacturing model and doesn't anticipate any change to the competitive landscape as a result of AMD's moves. Otellini pointed to the reorganization plan that Intel carried out in 2006, which included layoffs of thousands of workers and several billion dollars in spending cuts, and said the moves have made the company better prepared to weather changing market conditions. "While the economic outlook has deteriorated over the past quarter, our competitive position has strengthened," Otellini said.