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Intel Holds Up

Revenue is light, but gross margins are above estimates.

Updated from April 17


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reported flat first-quarter profit and revenue, as competition and tepid demand kept sales in check.

But the big chipmaker bumped up its profit margin outlook for the full year, offering the first modest piece of evidence that the turnaround plan undertaken by CEO Paul Otellini last year is starting to bear fruit.

"We are planning for growth in the second half of the year," Otellini told analysts in a post-earnings conference call Tuesday.

In early Wednesday trading, shares of Intel were up 29 cents, or 1.3%, to $21.25.

In the three months ended March 31, Intel said it recorded net income of $1.6 billion, or 27 cents a share, vs. $1.3 billion, or 23 cents a share at this time a year ago. But Intel said that $300 million, or 5 cents a share, resulted from a tax benefit.

Backing out the tax benefit, Intel's EPS was in line with Wall Street estimates.

Sales of $8.85 billion were just shy of the average analyst's expectation of $9 billion in revenue. At this time last year, Intel had sales of $8.94 billion.

According to Intel, total microprocessor-unit sales declined sequentially in the seasonally slow first quarter of the year, as did shipments of chipsets, flash memory and motherboards.

Otellini said that average selling prices for chips "held up well in a very competitive environment."

Still, the company acknowledged that ASPs were down slightly during the quarter, due to a lower mix of sales within its server processor business. Average prices for notebook and desktop processors were essentially unchanged during the quarter.

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Last month, rival

Advanced Micro Devices

(AMD) - Get Advanced Micro Devices, Inc. Report

warned that first-quarter sales would fall short of expectations, as average selling prices and unit shipments declined.

Intel and AMD have been in a fierce price war, as each company has slashed the prices of its chips in the hope of grabbing market share. The competition has damaged profit margins at both companies.

While Intel's gross margin of 50.1% came in ahead of the company's 49% guidance for the first quarter, Intel said margins in the second quarter would slip to 48%, plus or minus a couple of points.

Similarly, Intel's projections for second-quarter revenue were on the low end of analyst expectations. Intel said second-quarter sales will range between $8.2 billion and $8.8 billion, compared with analyst expectations of $8.8 billion, according to Thomson Financial.

Intel CFO Andy Bryant said the second-quarter revenue outlook was slightly worse than seasonal.

Stifel Nicolaus semiconductor analyst Cody Acree says Intel's weak sales guidance, combined with AMD's own revenue shortfall, reflects a slowing market for PCs.

But he said that aspect of the business was well understood on Wall Street, with investors more likely to focus on Intel's improved gross margin guidance for the full year.

Intel raised its full-year gross margin projection a notch to 51% plus or minus a few points, vs. its previous guidance of 50%. The company said the improvement owed to improving costs per unit, as the company moves to advanced manufacturing processes, along with slightly better-than-expected trends in pricing.

CFO Bryant said the pricing benefit owed to Intel's improved lineup of chips.

"As time passes, we think we have more than just price to compete on," said Bryant.

Shares of Intel closed the regular session up 29 cents at $20.48.