Intel posts healthy Q1, ups forecast for Q2

Updated 4 p.m. PDT with executive comments from Intel's conference call.

Intel's first-quarter earnings should go a long way toward reassuring the tech industry that the world is not coming to an end.

The chipmaker reported revenue of $9.7 billion, up 9 percent from the same period last year and a little better than Wall Street analysts were expecting. Net income was $1.4 billion, or 25 cents a share, in line with the company's revised expectations after realizing its flash memory business went in the tank for the quarter.

But in Intel's regular PC and server chip business, things are looking pretty good. "Our first quarter results demonstrate a strengthening core business and a solid global market environment," said Paul Otellini, Intel president and CEO, in a press release. Those words will come as a relief to those who follow Intel as a bellwether of the technology industry.

The first quarter is always slower compared to the fourth quarter of the previous year, coming off the holiday season. Revenue in both Intel's Digital Enterprise Group and Mobility Group was down compared to the fourth quarter, but DEG processor revenue was up 16 percent compared to last year's first quarter, and mobility processor revenue was up 12 percent. DEG consists of chips for servers and business PCs, while the mobility group owns Intel's Centrino and Core 2 Duo efforts.

Server processors, particularly in the U.S., were strong in the first quarter, Otellini said on a conference call following the release of Intel's numbers. Any concern about PC shipments to Wall Street--one of the PC and server industry's best customers--in the face of the credit crunch were offset by strong server sales to that group, he said.

Server sales were also strong as companies like Google and Amazon continue to expand massive data centers to enable concepts like cloud computing, Otellini said. He noted that Intel is selling components directly to these companies, which isn't a new channel for Intel but might have been expanded in recent months.

On the PC side, notebook growth has been so strong, and desktop growth so weak, that Otellini now expects the notebook/desktop crossover to happen this year. Notebook shipments weren't expected to make up the majority of PC shipments until 2009, but Intel thinks that strong growth combined with interest in low-cost "Netbooks" could make that milestone happen this year.

Left unsaid in much of Otellini's commentary was the dismal situation over at Intel's only main competitor, AMD. The smaller chip company is laying off 10 percent of its workforce after seeing weak demand across all parts of its business, in contrast to Intel's rosy outlook.

I'm left wondering if Otellini would be so confident about the global macroeconomic environment if AMD were in any better shape. AMD's quad-core server chip, Barcelona, has just started to arrive to end users after a year-long delay, and Intel has a much better position in the notebook segment, as well. AMD will report its results on Thursday, and we'll get a better picture of its plans for the rest of the year then.

There was one thorn in Intel's side during the quarter, that woeful flash memory business. Intel sold off its NOR flash memory assets in forming a new company called Numonyx with STMicroelectronics during the quarter, but it's still subject to the volatile NAND flash market through a joint venture with Micron.

Intel and Micron are going to push out the construction of a new chip plant in Singapore as a result of the current oversupply situation, Otellini said. Intel is assuming that oversupply will last all year, said Stacy Smith, Intel's chief financial officer.

The real upside to Intel's results was its guidance for the second quarter, which exceeded analyst expectations. Intel is predicting revenue between $9 billion and $9.6 billion, the midpoint of which is higher than previous expectations of $9.2 billion. The second quarter is generally the slowest period of the year for chip companies.

Intel's shares rose 8 percent in after-hours trading.