Intel firm on margin target for year, shares jump

SAN FRANCISCO (Reuters) - INTEL(INTC.NQ)Corp on Tuesday affirmed its profit-margin TARGET(TGT.NY)for 2008, reassuring investors concerned about falling memory chip prices and the impact of a weak U.S. economy, sending its stock up 7.4 percent.

The world's largest maker of semiconductors reported a fall in first-quarter net income to $1.44 billion, or 25 cents per share, from $1.64 billion, or 28 cents a share, a year ago. Revenue rose to $9.67 billion from $8.85 billion, slightly better than Wall Street expectations.

With both Intel and smaller rival Advanced Micro Devices Inc issuing results warnings in the first quarter, fears had been mounting about PC sales with the U.S. economy possibly in a recession. Intel's report on Tuesday went a long way toward easing those worries.

"There was concern we were having a structural breakdown in demand -- that finally the weakness in the economy was starting to hurt PC consumption -- and this argues against that," said Cody Acree, an analyst at Stifel Nicolaus.

"More important than anything, it's simply that Intel is not giving an indication that the wheels are coming off."

The earnings per share met Wall Street's average target, according to Reuters Estimates, but it was the profit margin outlook and revenue growth that boosted the stock, analysts said.

"The full-year gross margin guidance of 57 percent, plus or minus a few points, is pushing the stock up," said Doug Freedman, an analyst at American Technology Research. "The concern was that the memory business was dragging down the gross margins, which would drag down earnings. The general consensus was that it would be more like 56 percent."

Intel had set the same margin target in January, then in March scaled back margin expectations to 54 percent, plus or minus a point, for the first quarter, citing flash memory chip prices. The first-quarter margin ended up being 53.8 percent.

TECH BELLWETHER

The company, one of the big bellwethers for technology, said it expected second-quarter revenue in a range of $9.0 billion to $9.6 billion and a gross margin of 56 percent, plus or minus a couple of points.

Analysts' current expectations for the second quarter are for a profit of 28 cents per share, on average, on revenue of $9.26 billion, according to Reuters Estimates. The midpoint of Intel's revenue forecast -- $9.3 billion -- is slightly above consensus estimates.

Early last month, Intel cut its first-quarter gross-margin forecast, citing weaker pricing on certain memory chips. Prices in the NAND flash memory-chip market have been under pressure for more than a year now.

"As expected we saw weak pricing," Chief Financial Officer Stacy Smith said in a phone interview. "We do expect to see continued oversupply throughout the rest of the year. That's what we have baked into our forecast."

He added that Intel's move to 45-nanometer chipmaking technology was paying off, enabling it to gain share against cross-county rival AMD.

"We see the core business being strong right now," Smith said. "We delivered exactly what we needed to deliver."

The average selling price for its chips was little changed in the first quarter from the prior quarter, and has been stable for the last three or four quarters, Smith said.

Shares of Intel are down 21 percent this year, compared with a 14 percent decline in the Nasdaq. In regular trade on Tuesday, the stock rose 22 cents, or 1.1 percent, to $20.91. It rose to $22.45 after-hours, following the earnings report.

(Editing by Braden Reddall)