Intel declares Q2 'best quarter ever,' notes healthy demand in PC and server segments

Intel reports on the quarter, showing a 34% year-over-year gain in revenue and noting "renewed economic momentum." Analysts believe Intel's results are the first of many robust reports from the chip sector to come this earnings season.

By Suzanne Deffree, Managing editor, news -- EDN, July 14, 2010

Calling Q2 the "best quarter ever," Intel Corp Tuesday afternoon reported on its June quarter, showing revenue of $10.8 billion up 34% or up $2.7 billion year over year. Sequentially, Q2 revenue was up $466 million.

Intel's Q2 operating income of $4 billion was up $4 billion on a year-over-year basis and up $533 million on Q1.

Q2 net income of $2.9 billion was up $3.3 billion as compared to Q2 2009 and up $445 million as compared to Q1.

Intel Q2 EPS (earnings per share) of 51 cents was up 58 cents as compared to Q2 2009 and up 8 cents as compared to Q1.

Gross margin was 67%, 3 percentage points higher than the midpoint of the company's expected range of 62 to 66%.

"Strong demand from corporate customers for our most advanced microprocessors helped Intel achieve the best quarter in the company's 42-year history," Paul Otellini, Intel president and CEO, said in a statement. "Our process technology lead plus compelling architectural designs increasingly differentiate Intel-based products in the marketplace. The PC and server segments are healthy and the demand for leading-edge technology will continue to increase for the foreseeable future."

Otellini further said on a conference call with analysts discussing the Q2 results that the "economics of the world continue to reflect renewed economic momentum. Intel's growth continues to be ahead of economic growth, reflecting what we believe is a fundamental shift driven by Internet adoption."

Financial analysts, too, were positive on the Intel report.

"Tuesday, Intel reported stellar Q2 results that meaningfully beat Street estimates and were new company records for revenues, gross margins, operating margins, profits, and revenues per employee," Craig Berger, a semiconductor market analyst at FBR Capital Markets, wrote  in a research note this morning. "Intel's impressive results are driven by various factors including robust server shipments (+13% quarter over quarter in Q2), muted CPU price declines (AMD is less competitive without 32 nm), meaningful headcount reductions versus bloated staffing levels in 2005-2007, improving unit costs, and increased factory efficiencies (more equipment reuse, lower capital intensity, faster production velocity)."

He continued: "Intel's results are clearly much better than feared, and indeed are much better than most investors dreamed possible. We think this shows global PC demand is fairly resilient even in the face of macro-driven pressures. Further, we think Intel's results are the first of many robust reports (most will not be as robust as Intel's, though), and likely set the stage for rallies in laterals including AMD, MRVL [Marvel], NVDA [Nvidia], and ATHR [Atheros]."

Looking to Q3, Intel guided for revenue of $11.6 billion, plus or minus $400 million. Gross margin was estimated at 67%, plus or minus a couple of percentage points.

Looking to Q3, Intel guided for

For the full year, Intel revised its gross margin estimate to 66%, plus or minus a couple percentage points, from the company's prior expectation of 64%, plus or minus a couple percentage points.

R&D spending estimates for 2010 are now at $6.6 billion. The company's prior expectation was approximately $6.4 billion.

Capital spending estimates are now at $5.2 billion, plus or minus $200 million. The company's prior expectation was $4.8 billion, plus or minus $100 million.