Intel Beat Bolsters Tech

Intel's best-ever quarterly results bode well for tech heavyweights such as Microsoft, Dell and H-P.
Publish date:



) -- Investor reaction to


(INTC) - Get Report

best-ever quarterly results

were driving up shares of other tech heavyweights like


(DELL) - Get Report



(HPQ) - Get Report



(MSFT) - Get Report

in early trading Wednesday.

Intel's shares continued their recent momentum, gaining 88 cents, or 4.19%, to reach $21.89 shortly after market open.

Dell shares rose 53 cents, or 4.02%, to reach $13.73, while H-P gained 79 cents, or 1.69%, to hit $47.56. Microsoft also got a lift from Intel's results, gaining 33 cents, or 1.31%, to reach $25.46, outpacing the modest advance in tech stocks that saw the Nasdaq rise 0.27%.

While PC upgrades helped bolster Intel's revenue, enterprise server sales proved to be the key driver in the chipmaker's blowout quarter, a fact that will reverberate across Silicon Valley.

Speaking during a conference call after market close, Intel CEO Paul Otellini explained that the company's server business had a record quarter. Chip sales into IP data center servers grew a massive 170% year over year, he said.

Although infinitely less sexy than netbooks, tablets and smartphones, servers represent a massive revenue opportunity for tech firms such as Intel,


(IBM) - Get Report

, H-P, and


(ORCL) - Get Report

, which recently acquired

Sun Microsystems.

Recent research from IDC revealed that first-quarter server revenue grew 4.7% year-over-year to reach $10.4 billion. This represented the first quarter of year-over-year revenue growth in seven quarters, according to the tech research firm, signaling a major rebound in corporate IT spending.

"We continue to believe that

the server upgrade will gain momentum this year as more corporations realize the attractive ROI gained by replacing outdated hardware," explained Avi Cohen, an analyst at Avian Securities, in a note released on Wednesday. "We think this is an important point to remember since we believe increased corporate spending will lend critical support to Intel's top-line stability should consumer momentum decelerate more than expected."

Servers also play a key role in maintaining Intel's impressive gross margin, which was 67% during the second-quarter, and could rise to 69% this quarter.

"We view servers positively since margins there are considerably higher (we estimate at least 10 points above corporate gross) and will provide a nice boost to blended gross margin in the future," explained Avian Securities' Cohen.

Set against this backdrop, Intel offered healthy third-quarter guidance on Tuesday, and expects to bring in revenue between $11.2 billion and $12 billion, well above Wall Street's estimate of $10.92 billion.

"The economies of the world continue to reflect improved economic momentum," said Otellini, during Intel's second-quarter conference call. He also noted that firms are refreshing their PCs. The CEO endorsed analysts' projection of 20% growth in PC demand this year, and explained that Intel's Atom processor business grew 16% sequentially.

There was no mention of Intel's Moorestown chip -- or the company's delayed entrance into the smartphone market -- but Otellini did give an update on the netbook and tablet markets during the second-quarter conference call, predicting that 40 million netbooks will be shipped this year.

As for tablets, though, which have grabbed plenty of headlines since the launch of


(AAPL) - Get Report


, the Intel CEO is not getting carried away.

"I think we're in the early stages of tablets," he said. "There's just one really shipping at volume today."

-- Reported by James Rogers in New York

Follow James Rogers on