Intel Raises Third-Quarter Sales Forecast

In a sign that demand for personal computers is gaining strength, Intel Corp. unexpectedly raised its third-quarter sales forecast Friday, saying its processor business is performing much better than expected.

The semiconductor giant said it now expects sales of between $7.3 billion and $7.8 billion, compared with its earlier forecast of $6.9 billion and $7.5 billion. The midpoint of the new range would be an 11 percent improvement over last year’s third-quarter sales of $6.5 billion.

Though analysts agreed the announcement is a positive sign, they differed on whether it represents merely a stronger-than-usual back-to-school season or if it’s the start of the long-awaited upgrade cycle in which companies and consumers replace older machines with new ones.

“What they’re seeing is a combination of the seasonal strength – back-to-school PCs,” said Krishna Shankar, an analyst at JMP Securities LLC. “And I think they’re seeing the positive impact of the early stages of corporate upgrade cycle for PCs and servers.”

The revision tops the average analyst forecast of $7.24 billion in sales, and earnings of 19 cents per share, according to Thomson First Call. Intel did not release an earnings estimate, but it did revise its gross margin forecast to 56 percent from 54 percent.

Shares of Santa Clara-based Intel rose as much as 10 percent shortly after the morning announcement, but settled somewhat later in the day. The shares were up $1.00, nearly 4 percent, to close at $27.39 on the Nasdaq Stock Market.

Andy Bryant, Intel’s chief financial officer, characterized the improvement as strong seasonal business. That, analysts said, was a sign that the company’s visibility into the future is not so great.

“They’re not ready to call it a recovery yet,” said Dan Scovel, an analyst at Needham & Co. “The bulk of the strength they’re seeing is seasonal – and it’s higher than normal – but it’s not beyond seasonality.”

Intel also could be reaping the benefits of its move toward higher-margin products, such as chips for notebook computers and servers. Bryant, however, refused to talk about specific areas that are showing the most growth. The company did say its communications chip unit, which is separate from the architecture group, remains soft.

“It’s basically a general uplifting across the Intel Architecture business,” he said. “I don’t see anything I could comment on that specifically differentiates itself.”

Earlier this year, the company launched its Centrino technology, which improves performance, decreases battery consumption and offers wireless communications for mobile computers. On Friday, Bryant repeated earlier statements that Centrino was doing well.

“It’s been a pretty good story for us,” he said.

On the desktop side, Intel launched Pentium 4 processors and chip sets that widen the path between the microprocessor and memory – a traditional PC bottleneck. It’s also releasing processors with Hyper-Threading, a technology that boosts performance by tricking the operating system into believing there are two processors instead of one.

Bryant struck a note of caution, saying that it’s unclear whether the momentum of the first part of the third quarter will sustain itself in the coming weeks. The company plans to release a midquarter update on Sept. 4.

Bryant also said Intel’s logic chip factories were running at nearly full capacity, with some shortages.

“I’m not worried that capacity is a great limiter,” he said. “I would love to have to face that problem.”

Limited supply could be beneficial in that it will boost prices. At the same time, it offers competitors like Advanced Micro Devices Inc. an opportunity to move in on Intel’s turf.

“We want to see visibility extend, and we want to see shortages so that there could be some pricing leverage,” Scovel said. “It doesn’t look like we’re they’re yet.”

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