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*Update* Intel Beats Third-Quarter Estimates

SAN FRANCISCO -- Intel (INTC) - Get Intel Corporation Report beat the Street's third-quarter estimates by 9 cents a share today, posting earnings of 89 cents a share, or $1.6 billion, on revenues of $6.7 billion.

That gave the company 9% revenue growth over the third quarter of last year. While the profit was just 1 cent a share over last year's third quarter, it was up 33% from the company's dismal second quarter. Analysts polled by

First Call

estimated earnings at 80 cents a share, with the whisper numbers at 84 cents a share in recent days.

In a statement after Thursday's market closed, the company reported record unit shipments and increases in motherboard shipments. But Intel also mentioned a decrease in shipments of embedded processors and microcontrollers. Intel's gross margin was 53%, up four percentage points from the second quarter, caused in part to a workforce reduction of 2,000 people.

Intel also said it spent $1.7 billion to repurchase 20.1 million shares of common stock during the quarter.

Intel's stock was trading at 81 1/2 in aftermarket trading, down from its closing price Tuesday of 83 9/16 , said Martin Joyce of



The following story appeared on TSC at 9:34 a.m. today:

Investors Raising the Bar for Intel

SAN FRANCISCO -- In this up-one-day-plummet-the-next market,


(INTC) - Get Intel Corporation Report

will have to come up with sparkling news or investors might take the previous two days' 8% rise from its stock price and buy ostrich futures.

Even if Intel offers outstanding third-quarter numbers after the market closes today, it may not be enough to prop up the stock. Consider that investors

bailed on

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TheStreet Recommends

Advanced Micro Devices

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

last Tuesday even though it surprised the Street, which had expected an 11-cents-a-share loss, with a 1-cent-a share profit. To many, AMD's future outlook remained too bleak.


First Call

consensus of 28 analysts projects Intel's third-quarter earnings at 80 cents per share, down 9% from the third quarter of last year, but up about 6% from what analysts were expecting before a Sept. 10 preannouncement.

Piper Jaffray

analyst Ashok Kumar is more bullish, betting on 84 cents a share thanks to a 7% increase in revenues from the year-ago quarter. Kumar, whose firm has no underwriting relationship with Intel, rates the stock a strong buy. The fourth quarter, historically a good one, should be strong too, said Kumar, who in August revised his earnings outlook for the fourth quarter to 92 cents a share from 86. (


profiled the analyst on

Sept. 17.)

Increasingly, investors are looking for more than short-term profits. Intel holders in particular want to hear about increased bookings and rising chip prices, something that few expect Intel to deliver. "We'd like to see a catalyst for things to improve," said Bart Wear, a senior vice president of

Winslow Capital Management

, which manages about $1 billion for institutional clients.

Just how jittery Wall Street feels about Intel is apparent in its stock. Since June, the stock has swung as low as 68 and as high as 92. Yesterday, it closed up 1 5/8 to 85 7/16 on volume of 15.6 million shares, down from its average daily volume of 19.8 million. At that price, Intel is trading at 26 times earnings, above the ratio of 22 for the

S&P 500


Intel raised expectations in early September when it told investors that third-quarter revenues would be at least $6.3 billion and as high as $6.5 billion -- up to a 10% increase over its dismal second-quarter revenue of $5.9 billion. That was a signal for analysts to revise their outlooks.

Sutro & Co.

analyst C.B. Lee is bullish on Intel's near term, projecting earnings of 81 cents a share for this quarter, but he suspects Intel will beat that number. Intel is thriving this quarter because it has moved out of some low-margin sectors like systems assembly and added new high-margin lines such as the XEON chip geared for the server market, and notebook chips -- both of which have little competition. Average sales prices are expected to hold for the third quarter.

Next year, when AMD releases its K-7 chip for servers and notebooks, Intel will face competition on its high end, Lee said. Any signs of thinning margins could trigger a selloff. "I'd be a little bit cautious," Lee said. "This is a nervous market and there could be profit-taking after they announce." (Sutro is not an underwriter for Intel.)

Others are more in line with the respected

Merrill Lynch

analyst Thomas Kurlak, the most bearish analyst on the chip sector, whose views have pressured Intel's stock price this year. On Sept. 15, Kurlak revised his third-quarter outlook to 80 cents a share from 69 cents.

Despite this revision, Kurlak, whose firm has no underwriting relationship with Intel, sticks by his neutral rating because he expects average chip prices to fall in coming quarters. While he has upped his 1998 earnings forecast to $3 a share from $2.78 a share, he expects 1999 earnings to fall to $2.90. "Our expectation is for more sluggishness in 1999 and a dull stock," he wrote.

Unless Intel execs offer some encouraging words to counter such a lackluster forecast, they may be as disappointed in Wall Street's reaction as Wall Street is likely to be disappointed in Intel.

For more info on institutional holders of this stock, as well as financial statements and earnings estimates, please see the

Thomson Company Reports.