Intel Lifts Expectations for Fourth Quarter

As demand picks up during the holiday season and the company whittles down its inventory, Intel says revised predictions show "broad-based strength" in its microprocessor and chip-set business.

Intel said Thursday that it expects fourth-quarter revenue to be higher than anticipated, based on strong demand for its products.

The Santa Clara, Calif.-based chip vendor made its disclosure as part of a previously scheduled business update that it releases in the middle of every quarter. In a conference call with analysts, Intel said it now expects revenue to be between $9.3 billion and $9.5 billion, higher than the previous range of $8.6 billion to $9.2 billion the company forecast when releasing its third-quarter results.

Andy Bryant, chief financial officer at Intel Corp., told analysts in a conference call that the revised predictions indicate "broad-based strength" in Intels microprocessor and chip-set business.

"Revenues in microprocessors and chip sets are greater than anticipated in all major market segments and geographies," he said.

"This guidance would yield a record quarter and a record year," Bryant said.

If Intel meets its projections, it would finish the year with revenues 16 percent higher than the previous year, the third straight year it would accomplish a double-digit revenue increase, one analyst said.

Still, Bryant called the fourth quarter a welcome return to "normal" seasonality, where revenue increases during the holiday sales season.

Intel suffered from an oversupply of Intel Architecture products—chip sets and microprocessors for PCs, notebooks and servers – during the second quarter, which drove inventories to a high of $3.22 billion. In the third quarter, demand snapped back, reducing the inventory levels slightly to $3.18 billion.

Intels current inventory is standing pat at $3.18 billion, with demand starting to pick up in anticipation of the holidays, Bryant said. Intel said Thursday that it is making progress on inventory reduction and expects a net inventory decrease of several hundred million dollars by the end of the quarter.

Ironically, Intel now faces a shortage of some of the same components it has an oversupply of—a situation tied to the manner in which Intel stores its excess inventory. Those chips are stored in die form, the raw silicon that later gets covered up by the package and shipped to customers.

"Normally, you hold your inventory in different stages for maximum flexibility," Bryant said. "You keep it in die [form], then package and test it as finished good die," he said.

"When demand rises, you have to package [a chip] and ship it–thats where the bottleneck is right now, in assembly and test," Bryant said.

Specifically, Bryant said he believes that there are customers suffering from chip-set shortages, although he said he wasnt sure whether it represented true demand or instances of "double ordering," where customers order parts from two different suppliers to make sure they can get the parts when they need them.

/zimages/6/28571.gifClick here for an interview with Intel CEO Craig Barrett on the companys shift in emphasis from clock speed to multicore designs.

Intel said previously that it expected to struggle during the holiday season, with pressure stemming from slower consumer PC sales as well as competition from rival Advanced Micro Devices Inc. Intels market share slipped slightly during the third quarter, although the firm still holds a commanding lead in the overall microprocessor market.

Finally, Intel said its gross margins are expected to be between 55 percent and 57 percent during the fourth quarter, plus or minus a couple of percentage points. At the end of the third quarter, Intel predicted that its gross margin percentage would be 56 percent during the fourth quarter.

Intel will provide still more detail next week in New York, when it hosts its fall analyst meeting for Wall Street analysts.

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