Despite a slowdown in personal computer sales, Intel (INTC) reported third-quarter earnings Tuesday that surpassed analysts' expectations -- even though the numbers were lower than the same period a year ago.
The Santa Clara chip giant said it earned 58 cents a share on sales of $13.5 billion. That represented an 11 percent drop in earnings per share and a 5 percent drop in sales from the third quarter last year. The company's $3 billion quarterly profit was down 14 percent.
Nonetheless, it was better than Wall Street had anticipated. Analysts surveyed by Thomson Reuters had expected the company to report earnings of 49 cents a share on sales of $13.2 billion.
"I've met with all our major customers, and while the market remains tough I've been encouraged to see a renewed appetite for innovation," Intel CEO Paul Otellini said during a conference call with analysts. While many computer makers have cut their production of PCs recently, he said others are developing tablets and a tablet-notebook called ultrabooks that will run exclusively on Intel's microprocessors.
As a result, Otellini added, "we're excited about the future and confident about our strategy and prospects in all the markets we serve."
Intel's shares rose 62 cents, or nearly 3 percent, to close at $22.35 just before the company issued the report, but its stock price fell 75 cents in after-hours trading.
"There is increased earnings risk associated with the Intel story as we move into 2013," concluded Bill Kreher, an analyst with Edward Jones. And despite the new personal computer designs being developed, he said, that won't help Intel "if people don't buy them."
Tech analyst Patrick Moorhead acknowledged that "the PC market has macroeconomic challenges." But on the plus side, he noted that Intel has begun getting its chips into the fast-growing smartphone and tablet markets, "which have pleasantly surprised many industry watchers."
Widely viewed as a key barometer of the tech industry's health, Intel has a stock market value of $111 billion and has proved resilient since it was founded in 1968. But it hasn't performed as well as Wall Street would like lately.
After exceeding analysts' expectations following the 2007-2008 financial crisis, the company's sales in recent months have slowed as demand for its microchips has weakened. Fearing the trend could continue, several analysts last week cut their estimates of the chipmaker's financial prospects, sending its stock price to its lowest level in a year.
While the sluggish worldwide economy has contributed to Intel's troubles, a more fundamental worry is its dependence upon personal computers. Its brainy microprocessors power about 80 percent of PCs, whose sales have dwindled as consumers have turned to smartphones and tablets. As a result, Intel is trying to get its chips into those mobile devices.
The company is beginning to have some luck in that regard. But its chips face intense competition from those using an alternative design from British firm ARM Holdings. Traditionally consuming less energy and, thus, providing longer battery life, the ARM camp dominates the mobile device market.
Even if Intel has success with its push into smartphones, the company is likely to remain so dependent on the stagnant PC market that its finances probably won't improve much over the next 18 months, according to a note Bernstein Research sent their clients last week,
Other industry observers believe the PC market could rebound in coming months, partly sparked by the introduction later this month of Microsoft's new operating system, Windows 8. But some analysts doubt Windows 8 will generate significant desktop and notebook sales.
Meanwhile, despite Otellini's remarks about ultrabooks, research firm IHS reported this month that worldwide sales of the devices would total only 10.3 million this year, down from its previous estimate of 22 million.
Contact Steve Johnson at 408-920-5043. Follow him at Twitter.com/steveatmercnews.