By LAURIE J. FLYNN
Published: July 20, 2011
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| Photo credit: Randy L. Rasmussen / The Oregonian |
Hillsboro, Oregon -- Intel's new research facility in full swing. Expected to open in 2013.
SAN FRANCISCO — Intel said that the modernization of data centers — the engines behind cloud computing — were responsible for the strong worldwide sales the chip maker reported Wednesday. Paul S. Otellini, chief executive, called the quarter strong across all of Intel's products.
“This was a very strong quarter across all our product lines and throughout the world,” said Paul S. Otellini, Intel’s chief executive, in a conference call with analysts. “Strong corporate demand for our most advanced technology, the surge of mobile devices and Internet traffic fueling data center growth, and the rapid rise of computing in emerging markets drove record results.”
Intel’s results were also lifted by strong demand from corporations and first-time purchases by customers in China and other emerging markets.
The company, the world’s largest maker of computer chips, said its net income after expenses rose 2 percent to $3 billion, or 54 cents a share, exceeding Wall Street estimates. Revenue increased 21 percent, to $13 billion.
Intel has for several quarters experienced a surge in demand for technology used in data centers, which store and process the huge amounts of information flowing across the Internet. The importance of that market was evident this week as Intel announced plans to acquire Fulcrum Microsystems, a privately held company that designs chips for data center networks. The terms of the deal were not disclosed. Revenue from data centers today accounts for roughly 20 percent of Intel’s sales.
“I fully believe that it is the data center — the cloud — that is driving Intel,” said Patrick Wang, an analyst with Evercore Partners.
Demand for cloud computing is created by the soaring popularity of smartphones and tablets, which provide consumers with continuous, on-the-fly access to the Internet. Mr. Otellini told analysts in May that the technology industry needs one data center server computer for every 600 smartphones in use and one server for every 122 tablets. “We believe we are very early in the cloud build-out and that Intel is well positioned to grow,” Mr. Otellini said. During the second quarter, revenue growth in Intel’s data center group accounted for $2.44 billion.
Wall Street analysts had said earnings would remain flat at 51 cents a share while revenue would increase 19 percent to $12.84 billion. In the same period last year, Intel earned 51 cents a share on revenue of $10.77 billion.
Mr. Otellini said he expected Intel’s revenue to grow in the mid-20 percent range for the year. Revenue will be about $14 billion, Intel said, compared with a forecast of $13.5 billion.
Intel’s gross margin, the percentage of sales excluding production costs, will be about 64 percent, up from 61 percent in the second quarter.
Intel reported that sales in its PC group rose 11 percent, in stark contrast to reports of sluggish PC shipments worldwide. The technology research firm Gartner said last week that shipments grew only 2.3 percent during the second quarter, to 85.2 million computers.
But while Intel has continually confounded skeptics forecasting gloom in the PC market, the company has come under intense criticism lately for stumbling in the market for smartphones, where some analysts worry that it may be too late for Intel to catch up.
Products based on a competing chip standard, known as ARM, have quickly dominated the market. Intel is not expected to have a viable alternative on the market for several months.
Stacy J. Smith, Intel’s chief financial officer, said on Wednesday that production of its mobile chip was on track.
The financial report was issued after the close of regular trading Wednesday. Shares of Intel closed at $22.99, then declined slightly in after-hours trading. The second quarter was the first full period that included the results of McAfee and Infineon Wireless, which Intel acquired in the first quarter. Those businesses contributed about $1 billion in revenue during the second quarter.
Intel’s results were also lifted by strong demand from corporations and first-time purchases by customers in China and other emerging markets.
The company, the world’s largest maker of computer chips, said its net income after expenses rose 2 percent to $3 billion, or 54 cents a share, exceeding Wall Street estimates. Revenue increased 21 percent, to $13 billion.
Intel has for several quarters experienced a surge in demand for technology used in data centers, which store and process the huge amounts of information flowing across the Internet. The importance of that market was evident this week as Intel announced plans to acquire Fulcrum Microsystems, a privately held company that designs chips for data center networks. The terms of the deal were not disclosed. Revenue from data centers today accounts for roughly 20 percent of Intel’s sales.
“I fully believe that it is the data center — the cloud — that is driving Intel,” said Patrick Wang, an analyst with Evercore Partners.
Demand for cloud computing is created by the soaring popularity of smartphones and tablets, which provide consumers with continuous, on-the-fly access to the Internet. Mr. Otellini told analysts in May that the technology industry needs one data center server computer for every 600 smartphones in use and one server for every 122 tablets. “We believe we are very early in the cloud build-out and that Intel is well positioned to grow,” Mr. Otellini said. During the second quarter, revenue growth in Intel’s data center group accounted for $2.44 billion.
Wall Street analysts had said earnings would remain flat at 51 cents a share while revenue would increase 19 percent to $12.84 billion. In the same period last year, Intel earned 51 cents a share on revenue of $10.77 billion.
Mr. Otellini said he expected Intel’s revenue to grow in the mid-20 percent range for the year. Revenue will be about $14 billion, Intel said, compared with a forecast of $13.5 billion.
Intel’s gross margin, the percentage of sales excluding production costs, will be about 64 percent, up from 61 percent in the second quarter.
Intel reported that sales in its PC group rose 11 percent, in stark contrast to reports of sluggish PC shipments worldwide. The technology research firm Gartner said last week that shipments grew only 2.3 percent during the second quarter, to 85.2 million computers.
But while Intel has continually confounded skeptics forecasting gloom in the PC market, the company has come under intense criticism lately for stumbling in the market for smartphones, where some analysts worry that it may be too late for Intel to catch up.
Products based on a competing chip standard, known as ARM, have quickly dominated the market. Intel is not expected to have a viable alternative on the market for several months.
Stacy J. Smith, Intel’s chief financial officer, said on Wednesday that production of its mobile chip was on track.
The financial report was issued after the close of regular trading Wednesday. Shares of Intel closed at $22.99, then declined slightly in after-hours trading. The second quarter was the first full period that included the results of McAfee and Infineon Wireless, which Intel acquired in the first quarter. Those businesses contributed about $1 billion in revenue during the second quarter.
This article has been revised to reflect the following correction:
Correction: July 20, 2011
An earlier version of this article misstated the percentage increase in Intel's net income as 10 percent.
Correction: July 20, 2011
An earlier version of this article misstated the percentage increase in Intel's net income as 10 percent.
