Intel Shines Even Without iPhone

Yesterday, Intel Corporation (INTC) reported strong second quarter results that beat analyst estimates. Performance was driven by strong demand in the microprocessor and chipset businesses. Revenue grew 9% y-o-y and declined 2% q-o-q to $9.5 billion. Net income was up 25% y-o-y and 11% q-o-q to $1.6 billion with EPS of $0.28. Analysts had estimated EPS of $0.26 on sales of $9.33 billion.

Gross margin was 55.4% compared with guidance of 56% in Q1, up from 53.8% last quarter. R&D and MG&A expenses were up 3% to $2.9 billion. Intel also incurred restructuring and asset impairment charges of $96 million. Headcount declined by 2,700 in the quarter mainly due to the transfer of employees to Numonyx, the Intel/STM spin-off. In the two years since the company began its restructuring program, it has reduced headcount by more than 20,000.

By segment, the Digital Enterprise Group (DEG) had revenue of $5.4 billion, up 11% y-o-y and flat compared with Q1. Within DEG, microprocessor revenue grew 14% y-o-y. The Mobility Group had revenue of $3.8 billion, up 15% y-o-y and 3% q-o-q.

Intel bought back stock worth $2.5 billion during the quarter.

The new Atom processor for small computing and convergence devices was launched in Q2, and the next iPhone could have the Atom as its brain. The new 3G iPhone continues to use the Samsung chip, and Intel only figures in the NOR Flash from Numonyx. It is a reasonable bet that Samsung will be losing the socket in the next iPhone. There are, however, other competitors, including Broadcom, Qualcomm, Marvell, Infineon, ST, and TI, to contend, for Intel to win Apple’s heart. My earlier iPhone-related posts on Intel are available here and here.

And this week, Intel finally launched Montevina, its Centrino 2 notebook platform of multi-core processors with better graphics and battery life. The company also has a new eight-core processor, Nehalem, that helped it score a design win against AMD at DreamWorks Animation studio. Another design win over AMD was at Cray Inc. Read my earlier thesis on Intel’s multi-core strategy. The main AMD-Intel battle is in the multi-core arena, with AMD all but conceding Mobility.

According to the latest iSuppli report for Q1, Intel’s market share increased to 79.7% from 78.5% in Q4. AMD gained market share over the year, jumping from 10.9% in Q1 2007 to 14.1% in Q4, but slid back to 13% in the recent quarter.

With these new launches, the third quarter looks promising. Later in the third quarter Intel expects to launch Dunnington, a six-core server processor targeted at high-end server workloads.

Based on its strong second quarter performance and promising launches, Intel posted strong Q3 guidance. Revenue is expected to be between $10 billion and $10.6 billion with gross margin at 58%. The stock is currently trading around $21 with a market cap of $110 billion. It will likely climb back to the mid-twenties later this year if they continue to deliver.