Intel On The Upswing

By Ryan C. Fuhrmann | January 22, 2010 AAA

Microchip giant Intel (Nasdaq:INTC) reported fourth quarter and full year results earlier in the month, boasting that it had an outstanding quarter and entered 2010 in a very strong position. Indeed, earnings beat analyst expectations by a wide margin to indicate that Intel is on the next upswing in demand for its chips and other related computing products.

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Fourth Quarter Results
Fourth quarter revenue jumped ahead 28% to $10.6 billion as sales in the flagship PC Client Group, which sells microprocessors, chipsets and motherboards, improved 26.1% to account for 73.4% of total net revenue. Management detailed during its earnings conference call that its notebook business was exceptional this quarter with demand very strong across the globe.

Computer giant Hewlett Packard (NYSE:HPQ) cited an improvement in notebook and desktop unit shipments during its most recent quarter. Despite revenues being down 3% in fiscal 2009, EPS increased by 18%. HP claims the top spot in the U.S. PC market and witnessed over 20% fourth-quarter revenue growth in China. Closely-watched gross margins grew 12 points to 65% to send net income ahead nearly ten-fold and even included a $1.25 billion settlement payment to archrival AMD (NYSE:AMD) stemming from a number of previous patent disputes.

Full Year Results
Total net revenue still fell for the entire year, decreasing 7% to $35.1 billion as sales declined in every business segment. The full year also included the payment of a $1.4 billion fine to the European Commission in regard to anticompetitive tactics against AMD again, making 2009 an expensive year on the legal front. Net income ended up falling 17% to $4.4 billion, or 77 cents per diluted share.

Intel did not provide specific sales or earnings guidance but said to expect gross margins of 61 percent on $9.7 billion in revenues along with a total spending on R&D and other expense of $11.8 billion. Analysts are currently in the process of crunching Intel's latest guidance into their earnings models but project improvements in full-year earnings.

The Bottom Line
Intel's industry, which includes rivals such as Texas Instruments (NYSE:TXN) and Micron Technology (NYSE:MU), is volatile as it oscillates with the ups and downs of computer and chip demand. For now, its operations appear to be on an upswing and on their way to the next inevitable peak and subsequent downturn. (For more related reading, refer to Technology Sector Funds.)

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