Intel profit surges 96 percent

Santa Clara (CA) - UPDATE - Intel reported second quarter income of $1.76 billion on revenues of $8.05 billion, beating analyst’s expectations but landing on the lower end of its own forecast. A production error in the Grantsdale chipset put a $38 million dent in the books.

The chip manufacturer posted a strong quarter result, which follows typical seasonal trends and marked a significant jump year-over year. While revenues were about flat sequentially, revenue grew about 18 percent from $6.8 billion to $8.05 billion ; net income almost doubled from $896 million to $1.76 billion.

"We had a notable quarter with respect to new product launches with the introduction of 90 nm processors for mobile and the enterprise market segment along with our Grantsdale chipset for the desktop which delivers some of the most significant PC platform enhancements in a decade. Looking to the second half, we will use our investments in leading-edge capacity to drive growth in our core microprocessor business and expand our presence in chipsets, flash and other communications products," Intel CEO Craig Barret said in a prepared statement.

Compared to the first quarter of this year, Intel reported lower shipments of processors combined with a lower average selling price, which Intel President and COO Paul Otellini attributed to higher market "pressure" on the segment. Prescott processors were ship in lower amounts than teh company anticipated. Revenues decreased about four percent sequentially to $5.8 billion. For the third quarter, Intel expects Prescott shipments to increase significantly due to lower prices and the introduction of Grantsdale and Alderwood chipsets.

Chipset sales increased with motherboard units setting a new record level. Connectivity products grew strongly, Flash led the pace in the last quarter with a sequential growth of 41 percent to $587 million, the company said.

Standouts of the past quarter were launches of a range of products including new Pentium M processors (code-named Dothan), the firm’s first 32-/64-bit Xeon processors (Nocona), which sould appear in servers within the "next few weeks." Mentionable is also the launch of the Grantsdale/Alderwood chipset platform. The cost of the recall of the Grantsdale chipsets was indicated in the earnings statement with $38 million.

This "unanticipated" charge reflects "a chipset manufacturing excursion". Intel did not detail the cost of the recall itself. According to Otellini, the manufacturing issue was "limited to one factory" and all affected chipsets have been recalled and removed from the market. "We have a sufficient level of Grantsdale chipsets in line," Otellini said.

Intel expects revenues of $8.6 billion to $9.2 billion for the third quarter. As the company enters the "growth half" of the year a mid-point of the projection reflects a sequential revenue growth of eleven percent.

Despite a solid second quarter report, investors reacted cautiously sending Intel’s stock down 4.4 percent late Tuesday. Analysts cited Intel’s increased sales of less profitable products resulting in a shrinking margin as main reason for the loss.