No Slowdown at Intel

The chip giant beats on the top and bottom lines.
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Updated from 5:01 p.m. EDT

Intel

(INTC) - Get Report

walked past its first-quarter financial targets Tuesday, citing strong demand for its mobile chips, and it set a second-quarter sales goal consistent with Wall Street forecasts.

Also, the chip giant boosted its full-year gross margin target by 1 percentage point to 59%, and it raised its capital spending target to a range between $5.4 billion and $5.8 billion. It had previously estimated capital spending at $4.9 billion to $5.3 billion.

For the quarter ended April 2, Intel reported net income of $2.15 billion, or 34 cents a share, on sales of $9.43 billion. During the same quarter last year, Intel earned $1.73 billion, or 26 cents a share, on sales of $8.09 billion.

Analysts expected earnings of 31 cents a share on sales of $9.31 billion, on average, according to Thomson First Call. Intel's first-quarter sales typically decline 5% to 7% from the fourth quarter. Actual results represent a decline of 1.8%.

Shares recently rose 3.5% to $23.43 in the late-trading session after closing the regular session up almost 2% to $22.63.

Intel's increased capital-spending budget also spiked the shares of equipment manufacturers, with

Applied Materials

(AMAT) - Get Report

,

KLA-Tencor

(KLAC) - Get Report

, and

Novellus Systems

(NVLS)

each advancing at least 3%.

"This should put to rest a lot of bear stories that are out there concerning problems in notebook and desktop demand," says analyst Apjit Walia with RBC Capital Markets. RBC has provided Intel with noninvestment banking services in the past year.

Walia says investor worries stemming from weakness at

IBM

(IBM) - Get Report

are lagging indicators and that Intel's results prove that computer demand is solid right now. "The biggest leading indicator of the PC cycle is Intel and that's what people should follow."

Santa Clara, Calif.-based Intel is the world's largest chipmaker, getting its semiconductors into four of every five computers made in the world. Still, its shares have been wracked during the past six weeks on growing concerns about a weakening economy. Early in March, Intel shares eclipsed $25, an eight-month high, but have fallen since then. For the year, shares are flat.

Despite investor enthusiasm for Intel's results, company executives were reserved about their results. "The first quarter was a solid start to the year," said Intel CFO Andy Bryant. "It's always appropriate to be concerned about the economic outlook, but we feel we are on firm footing with the strength of our business model."

For the second quarter, Intel forecast sales between $8.6 billion and $9.2 billion and gross margins of 56%. Analysts had expected sales of $8.9 billion and earnings of 28 cents a share. Bryant said his targets for the current quarter were "consistent with historical patterns."

Gross margin in the first quarter was 59.3%, higher than the company's increased target of 57%, due to a better product mix and lower costs.

Intel said unit sales of computer chips were flat, as were selling prices, compared with the fourth quarter. The company said it shipped a record amount of mobile chips. Chipset units declined, as did motherboard units and flash memory units. Wireless connectivity chips rose, while unit sales of wired connectivity units decreased.

Midway through the first quarter, Intel told investors to expect sales of $9.2 billion to $9.4 billion and gross margins of 57%. That was up from earlier projections for sales between $8.8 billion and $9.4 billion and gross margins of 55%.