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Intel 1Q Profit Surges 19 Percent

The company said it earned $1.61 billion, or 27 cents per share, in the first three months of the year.

(San Jose, Calif.) After enduring a brutal year of plunging profits and massive job cuts, Intel Corp.'s first-quarter profit surge and sunnier financial forecast has analysts optimistic that the chipmaker's painful turnaround is working.

The company said it earned $1.61 billion, or 27 cents per share, in the first three months of the year. That's a 19 percent jump from the company's net income of $1.36 billion, or 23 cents per share, in the same period last year.

Intel said revenue in the quarter was $8.85 billion, down slightly from last year's $8.94 billion. Analysts surveyed by Thomson Financial were expecting the company to earn, on average, 22 cents per share on nearly $9 billion in revenue.

In a sign of Intel's confidence in its ability to wring more profits from its processors, the company raised its closely watched gross profit margin forecast for 2007 to about 51 percent of revenues, about the same as last year's results but nearly 9 percentage points below 2005 levels. Analysts said Intel will not likely reach its lofty profit levels of several years ago because of increased competition from Advanced Micro Devices Inc.

Before the results were released Tuesday, Intel shares gained 29 cents, or 1.4 percent, to close at $20.98 on the Nasdaq Stock Market. The stock gained another 43 cents, or about 2 percent, in after-hours trading.

Santa Clara-based Intel, the world's largest semiconductor company, said it benefited from its rapid shift to a new chip-making process and a big tax windfall that added $300 million, or 5 cents per share, back into the company's coffers.

Lower production costs helped the company withstand another round in a fierce price battle with Sunnyvale-based AMD. AMD siphoned off about 4 percent of the overall processor market from Intel in 2006, but the company's growth appears to be slowing because of a strong new product lineup from Intel.

Intel has been better able to absorb the price cuts because of its size advantage -- its market value is 16 times that of AMD's. Intel also completed its wide-ranging restructuring ahead of schedule in the first quarter, shrinking the company's work force by 10 percent to 92,000 workers and positioning itself for major cost savings.

While there is still some concern about Intel's lower profit margin and revenue forecast for the second quarter, Doug Freedman, an analyst with American Technology Research, said the improved cost controls and higher full-year forecast are helping investors warm up to the stock again.

Intel also appears to have regained its competitive footing against AMD, while in an interesting turnabout borrowing heavily from some of AMD's technology ideas, Freedman said.

"AMD's roadmap is what Intel's executing -- that's what I think is taking place now," he said. "Where does that leave AMD? It leaves Intel in the driver's seat. They're executing well, and it seems like Intel feels like they've regained the upper hand. That means the price battle is probably nearing the end."

Sales were down across all of Intel's major divisions, and average selling prices were lower in the lucrative market for corporate server processors. Prices for desktop and mobile computer processors were nearly flat.

However, Intel was able to offset the slumping sales with lower manufacturing costs because of its shift to a more advanced manufacturing technology.

Intel had about a year's head-start over AMD in producing chips using so-called 65-nanometer technology, which shrinks the width of a chip's circuitry to 65 billionths of a meter. The shift allows companies to squeeze more transistors onto the same slice of silicon, boosting performance while lowering manufacturing costs. Both companies are now shifting to 45-nanometer technology.

"The market remains competitive, but we think we're starting to see the benefit of the new products we rolled out last year," Andy Bryant, Intel's chief financial officer, said in an interview with The Associated Press. "As we bring better and better products to the marketplace, it gives us the ability to compete on something more than price."

While Intel appears to be on the upswing, AMD has slashed its revenue forecast. Analysts expect the company to post a loss of 48 cents per share when it reports its own first-quarter results Thursday.

Analysts are concerned about AMD's ability to pay for its $5.6 billion acquisition of graphics chip maker ATI Technologies Inc. and make the costly transition to the new chip-making process.

AMD's stock price has plunged 55 percent from last year, wiping out more than $7 billion in shareholder wealth. Meanwhile, Intel investors have profited, with Intel shares climbing 9 percent over last year and adding about $8 billion to the company's market value.

"Intel's still doing exceptionally well financially -- they've certainly turned the corner from where they were behind the eight ball," said Jim McGregor, director of semiconductors and enabling technologies research at In-Stat. "They've got AMD on the ropes. AMD purchasing ATI definitely put their financial situation in jeopardy, and Intel can definitely withstand a lot more -- they've got a boatload of cash and higher margins, typically. But the big question is, can these profit margins hold up?"

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