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Intel Forecasts Higher Sales in 3rd Quarter

The improved outlook raises hopes for a broader technology industry recovery. Chip stocks gain on the news.

August 23, 2003|Alex Pham | Times Staff Writer

Technology bellwether Intel Corp. unexpectedly beefed up its sales outlook Friday, giving a further boost to semiconductor stocks and spurring hopes for a broader industry recovery.

The Santa Clara, Calif.-based chip maker, traditionally conservative in its forecasts, said it was seeing jumps in almost every product category -- suggesting stronger demand for computers and gadgets.

Intel boosted its third-quarter revenue projection to a range of $7.3 billion to $7.8 billion, up from $6.9 billion to $7.5 billion. Such results would mark an 11% to 20% increase over the same quarter last year and a 7% to 15% rise from the second quarter this year.

"It's basically a general uplift across" the company's core chip business, said Chief Financial Officer Andy Bryant, who declined to declare a more extensive tech-industry turnaround.

Many analysts did so anyway.

"It's a very positive sign for what we see as the beginnings of a broad-based recovery," said Eric Rothdeutsch, senior vice president of investment firm Friedman, Billings, Ramsey Inc. "It's highly unusual for Intel to raise guidance at this early point in the quarter."

The news pushed the SOX index of 18 semiconductor-related stocks up 0.9% for the day to a 14-month high, adding to a big week for the group. The index had jumped 10.4% the previous four days.

But chip stocks pulled back from their peaks Friday. Intel rose as high as $29.04, then closed at $27.39, up $1. Advanced Micro Devices Inc. closed up 46 cents at $9.91 but had been as high as $10.30.

Not all technology watchers were convinced that Intel's improved outlook was a sign of broader strength.

"Riding semiconductor stocks is better than riding Six Flags roller coasters," independent analyst Fred Hickey said. They go up because people think "there's going to be a rebound, then there's this big inventory puke and everybody collapses.... We still go on the ride."

Hickey, who publishes the High Tech Strategist newsletter, said computer makers this summer increased their chip purchases in anticipation of an uptick in sales in the second half of the year. "It's called euphoria-driven inventory build," he said. "We've seen nothing to suggest an actual pickup in corporate spending."

Others had more hope.

Rob Enderle, principal analyst of Enderle Group in San Jose, said there had been other recent indications of strength in the technology sector. For one, computer giant Dell Inc. last week posted a 24% bump in quarterly profit on increased sales of all products.

"Dell's another bellwether, and their performance is tied directly to sales, not anticipated sales," Enderle said. "There are signs that corporate spending is starting to warm up."

Rothdeutsch said that spending on personal computers by large companies continued to lag but that small and medium-sized businesses were leading the recovery. "What's driving PC sales are the small and medium businesses that can respond more quickly to changes in the economy," he said.

This week provided a string of upbeat economic reports, including a surge in manufacturing activity in the mid-Atlantic region in July, lower levels of new claims for jobless benefits last week and a rise in the Conference Board's index of leading economic indicators.

"There are three things that help Intel," Rothdeutsch said. "Their execution has been flawless. Secondly, AMD continues to struggle, so there's little competition for Intel. And finally, they're benefiting from the beginnings of a true economic pickup."

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