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Intel Profits Rise, But Financial Crisis Adds Uncertainty

Intel's closely watched gross margin increase was driven mostly by lower microprocessor unit costs and higher chip revenue.
Intel on Tuesday said profits rose 12% in the third quarter because of higher margins and lower expenses, but the chipmaker said it was uncertain of the impact the global financial crisis would have on the rest of the year.

Intel reported that net income rose to $2.01 billion, or 35 cents a share, from $1.79 billion, or 30 cents a share, from the same period a year ago. Revenue increased 1.3% to $10.22 billion, which was in line with the company's forecast in July of between $10 billion and $10.6 billion.

In after-hours trading, Intel shares were up more than 3% to about $16.40.

Intel's closely watched gross margin increased to 58.9% in the quarter from 55.4% in the second quarter. The increase was driven mostly by lower microprocessor unit costs and higher chip revenue. Operating income was 44% versus 37% the previous quarter.

While delivering a solid performance, Intel acknowledged that the next quarter was a bit cloudy because of the Wall Street meltdown that sparked a global crisis in the credit markets.

"As we look at Q4, it is hard to know what impact the financial crisis will have on end customer demand," Paul Otellini, president and chief executive of Intel, said in a statement. "We are confident that our product portfolio, strong cash flow, commitment to deploying new technology and market momentum will allow us to outpace peer companies at a time when business levels are difficult to predict."

Among the products introduced this year by Intel was the Atom processor, a low-power chip that targets the emerging "netbook" market. The mini-notebooks have screens 10 inches or less and are aimed at people looking for a second or third computer to check e-mail and browse the Web on the road. Intel said Atom contributed $200 million in revenue in the third quarter.

The latest results included a net loss of $265 million from equity investments and interest, primarily the result of a $250 million impairment from the company's investment in Numonyx, a flash-memory manufacturer that's a joint venture between Intel and STMicroelectronics.

Looking ahead, Intel expects revenue between $10.1 billion and $10.9 billion in the fourth quarter and a gross margin of 59%, plus or minus a couple of points.

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