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Intel 3Q Beat, Optimism Boosts Stock

Intel Corp.'s soaring sales of microprocessors helped the company overcome flat prices for those chips and reap a 43 percent boost in profits in the third quarter.

Now analysts are turning their focus to whether demand for Intel's chips will hold up in the holiday season. They are debating whether PC makers overestimated their needs and bought too many chips, which could lead to a backlog and then a slowdown. Some say the market is cranking along as well as Intel believes and the chip maker's sales will continue to be robust, driven by strong PC sales worldwide.

Intel's microprocessors act as the brains of those computers.

Investors liked Intel's upbeat outlook and sent shares of the Santa Clara-based chip maker up $1, or nearly 4 percent, to $26.48 in Wednesday morning trading on the third-quarter financial results, which were reported after the market close on Tuesday.

Bolstered by the swelling demand and its own lower costs following a massive restructuring, Intel glided past Wall Street's already-bullish expectations.

Intel said it earned $1.86 billion, or 31 cents per share, in the three months ended in September. That beat by a penny the average estimate of analysts surveyed by Thomson Financial, and it's 43 percent higher than the $1.3 billion, or 22 cents per share, Intel earned in the year-ago period.

On a conference call to discuss the earnings report, management dismissed concerns about a potential slowdown and said demand justified their higher financial targets.

Intel also announced a management shake-up Tuesday, appointing Chief Financial Officer Andy Bryant to the position of chief administrative officer, effective immediately. His replacement as CFO is Stacy Smith, an Intel employee since 1988 whose latest job was assistant CFO.

Intel's revenues for the quarter were $10.09 billion, a 15 percent jump from the $8.74 billion in sales rung up a year ago.

The sales surprise helped jolt Intel's stock. Analysts were expecting $9.62 billion in revenues, a figure already boosted by a surprise financial update from Intel last month on the same day rival Advanced Micro Devices Inc. launched its highly touted new Opteron server chip.

While it's competing fiercely for market share with its smaller rival, Intel has also been aggressively cutting costs, including the elimination of 10,500 jobs, about 10 percent of its work force, announced in September last year, to save about $3 billion annually by 2008. Intel said in April that it had completed the restructuring but would continue to look for ways to cut costs.

On the conference call, management said Intel is now shrinking its work force by another 2,000 employees and aims to exit the fourth quarter with 86,000 workers worldwide.

"We've made remarkable improvement," Bryant said in an interview after the report was released. "All things are going pretty well right now."

Sales in the fourth quarter are expected to be between $10.5 billion and $11.1 billion, topping analysts' prediction of $10.42 billion.

They were also heartened by improvements in Intel's gross profit margin, a key figure scrutinized by analysts to gauge how well a company is managing its pricing and manufacturing costs. Intel's gross margin is expected to rise from 52 percent of revenues in the third quarter to about 57 percent, plus or minus a couple of percentage points, in the fourth quarter.

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