Notebook Demand Drives Intel's Q2 Earnings

Intel posted a 9 percent increase in revenue and a 25 percent increase in net income during the second quarter of 2008 compared with 2007. Revenues were driven by strong demand for the company's notebook processors and chip sets, Intel says.

Demand for notebooks helped drive Intel's 2008 second-quarter revenue past $9 billion.

The continuing demand for Intel's notebook processors and chip sets helped drive the company's second-quarter results, which were released July 15. In addition to demand for its notebook processors, Intel executives predicted that demand for its Atom processors for low-cost laptops and MIDs (mobile Internet devices) would help drive additional revenue for the rest of the year.

On July 14, Intel released its Centrino 2 platform for laptops, which came too late for the second quarter, but should help continue the demand for notebooks in the enterprise and among consumers in the second half of 2008.

The fact that Intel increased its second-quarter revenue 9 percent and its net income 25 percent compared with the second quarter of 2007 should come as a welcome sign for the PC industry, as the U.S. economy and slower IT spending remain major concerns. In the last few weeks, several research firms indicated that PC shipments and revenues were better than expected and being driven by consumer demand for notebooks both in the United states and overseas.

Intel, which is a major bellwether of the technology industry, seems to have validated those optimistic reports. In a call with financial analysts, Intel CEO Paul Otellini acknowledged that the U.S. economy remained a concern, but said global demand for Intel's products, especially its notebook chips, would continue to drive revenues throughout the year.

"In mobile, we enjoyed very strong unit growth both sequentially and year over year," Otellini said. "As notebook computers continue to decline in price, we see demand growing in response. We saw notebook unit shipments cross over desktop in the overall client PC category in the second quarter, and that is sooner than we expected."

For the second quarter, which ended June 28, Intel posted revenue of $9.5 billion and the company had a net income of $1.6 billion or 28 cents per share. Wall Street analysts had been looking for Intel to post revenues of $9.3 billion and earnings of 25 cents a share. Intel also posted gross margins-an important indicator of profitability in the chip business-of 55.4 percent.

In the second quarter of 2007, Intel posted revenues of $8.7 billion with a net income of $1.3 billion or 22 cents per share.

In its financial statement, Intel said it was expecting its 2008 third-quarter revenue to fall between $10 and $10.6 billion with gross margins of 58 percent. The chip maker also plans to spend $2.9 billion on research and development along with marketing, general and administrative costs.

John Spooner, an analyst with Technology Business Research, wrote in a July 16 research report that Intel appears to be in a position to meet PC vendors' demand for both its mainstream mobile chips and the new Atom processors, which should continue to increase the company's revenues from notebooks and other mobile devices, especially in the second half of 2008.

"TBR believes that the company's growth in mobile, which in turn helped to fuel its higher second quarter revenue, shows that Intel is well positioned to meet rising demand for notebook PCs," Spooner wrote. "To that end, the company's PC maker customers have broadly embraced its Centrino 2 (Montevina) platforms and appear extremely bullish on its Atom processor for Internet access notebook or netbook strategy. Like Intel, TBR believes top-tier PC makers are expecting their Atom-based netbook machines to begin to rapidly ramp sales in the second half of 2008."

In addition to its revenues, Otellini said the company plans to ship more than 100 million of its 45-nanometer Penryn processors before the end of 2008. Intel also plans to ship its six-core Dunnington processor for multisocket servers in the third quarter.

The one bump in Intel's road this quarter is lower revenue for NOR flash memory, which is used primarily in mobile devices such as cell phones. Intel spun off its NOR business in March. But the company still retains part ownership of the new company called Numonyx. The lower prices for NOR flash memory, along with other charges, produced a loss of $96 million for Intel during the quarter.

While Intel posted better-than-expected results this week, the outlook for the company's main chip rival, Advanced Micro Devices, is not as promising. AMD will post its second-quarter revenues on July 17. AMD already announced that it would take a $900 million write-down after several businesses associated with its purchase of ATI performed worse than expected.

Editor's note: This story was updated to include a comment from an analyst.