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Intel Says Revenue Will Again Beat Expectations

Results: Strong demand cited in 4th-quarter projections, which might signal a good holiday season for technology firms.

November 11, 1998| From Times Wire Services

SAN FRANCISCO — Intel Corp. said Tuesday that strong demand would drive its fourth-quarter revenue higher than expected--the second quarter in a row that the world's largest computer chip maker has said results will beat Wall Street expectations.

In putting together two better-than-expected quarters, Intel is showing that even with 80% of the market for the brains of PCs, it can still produce higher revenue and earnings. The company said revenue will be 8% to 10% higher than the third quarter's $6.7 billion.

Gross margin, or percentage of revenue minus product costs, will surge a whopping 2 percentage points above the 53% in the previous quarter.

Analysts said the company is having great success with its Celeron chip designed for low-cost PCs, as well as with its Xeon chip, designed for server computers.

"If the No. 1 player in microprocessors says demand is that good, that means the whole technology area is going to have a pretty good Christmas selling season," said analyst Jack Geraghty of Gerard Klauer Mattison, who rates Intel a "long-term buy."

In after-hours trading, Intel stock was up $1.81 after gaining $1.56 to close at $97.56 on Nasdaq during regular hours. Intel disclosed the news after the close of trading. Times seem to be much better than the first half of the year, when Intel and personal computer makers were hurt by a glut of PCs on dealers' shelves.

The industry is gearing up for the holiday shopping season--its strongest period of the year--and companies are snapping up new models that just came out in August. Moreover, contrary to popular opinion, there is good growth in higher-end PCs that have faster chips, more memory and better performance.

"Demand for PCs above the $1,000 level is pretty strong," said Richard Slinn, a money manager at San Francisco-based Levensohn Capital Management. "Customers aren't just buying the cheapest of the cheap."

Intel's news follows bullish comments from Paul Otellini, head of Intel's business architecture group, during a speech at Oracle Corp.'s OpenWorld conference in San Francisco.

He said there was strong demand for the Celeron chip and that Intel expected to double unit shipments of the Celeron chip in the fourth quarter from the third.

That would be up from the 3 million to 4 million Celeron chips Intel shipped in the third quarter, estimated Bill Milton, an analyst at Brown Bros. Harriman & Co.

Otellini's speech also underscored Intel's aggressive push to sell more of its top-of-the-line Xeon chips into the high-end computing market.

Those processors, which now run as fast as 450 megahertz and are expected to reach speeds of more than 600 megahertz by the second half of next year, are the brains of powerful server computers that manage and process data on corporate networks.

Also Tuesday, the company said it won't complete its previously disclosed 3,000 job cuts this year. At the end of the third quarter, Intel said 2,000 jobs had been cut and that the remaining 1,000 would be eliminated by the end of the year. Intel said Tuesday that it will have a few hundred jobs left to cut at the end of December.

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