Intel's record Q2 results lift market gloom, set tone for tech earnings

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"We are now starting to see clear signs of enterprise customers investing in computers, particularly in laptops," Intel CFO Stacy Smith said. "It is a strong overall market."

"Strong demand from corporate customers for our most advanced microprocessors helped Intel achieve the best quarter in the company's 42-year history," said Intel CEO Paul Otellini.

"Now that corporations have some breathing room in the economy and their budgets, you're starting to see those machines that were four or five years old get refreshed," Otellini told reporters and analysts in a conference call.

Otellini also said the company's net profit and sales can grow by at least 10 percent over the next few years, in part by developing new processors that can be used in a variety of "smart" gadgets and appliances which are distinct from the traditional PC market.

Intel also offered a robust guidance, saying its gross profit margin, or the percentage of sales remaining after deducting production costs, will be about 67 percent this year. The company also said its third quarter sales will rise to $11.6 billion, plus or minus $400 million. Analysts polled by Bloomberg, on average, had estimated $10.9 billion.

Intel's upbeat outlook followed better-than-anticipated earnings from two other industrial bellwethers, Alcoa Inc, the largest US aluminum producer, and CSX Corp., the third largest US railroad by sales, and points to an improving economy, market analysts said.

Analysts cheered the announcement saying it allays fears of renewed economic slowdown and shows corporate IT spending is on the rise. Last year, corporates, hit by economic slowdown, scrimped on their IT spending and delayed orders.

Over half of Intel's revenue comes from Europe and the Asia-Pacific region and analysts feared that Greek debt crisis and a weak euro will hit its earnings. However, Otellini said that though businesses in Europe and China were slow when the quarter started, they "settled down" by the end of the quarter and were "nicely up" in both regions.

SunAmerica Asset Management analyst John Massey said the market was concerned that corporate "would be restrained with what's happened in Europe, (but) that wasn't the case."

"They beat on the top line, they beat on the bottom line, the gross margin is through the roof. It couldn't be better," said Global Equities Research analyst Trip Chowdhry.

Agrees Wedbush Securities analyst Patrick Wang. "Clearly they (the results) are pointing to a much stronger enterprise demand. It looks like Intel management is more bullish about the environment than most investors were," Wang said.

While market research firms IDC and Gartner Inc. predict that PC shipments will grow a robust 20 percent this year, Forrester Research said that worldwide IT spending will grow 9.3 percent in the current fiscal year from an estimated $1.4 trillion in 2009. IT spending in the US, Forrester said, will drive the growth as companies, hit by last year's recession, make up for delayed orders.

Wasatch Advisors Inc. analyst Michael Shinnick said Intel's announcement sets the tone for Microsoft and other PC makers which are scheduled to announce their earnings soon.

Internet search engine giant Google and Intel rival AMD will be reporting the quarterly results on Thursday, followed by IBM on 19 July and Cisco Systems in next month.

"There is a powerful upgrade cycle that is going on within the PC and server space. Technology demand is stronger than the overall pace of the recovery," Shinnick said.

Agrees Masterlink Investment Advisory analyst Tom Tang. "We have more confidence in the tech sector's recovery now," Tang said.

Shares of Intel, whose processors run more than 80 percent of the world's PCs, closed up 2.14 percent at $21.01 on Tuesday. On Wednesday, shares were up 6.38 percent during pre-market trading session.