Intel perks up tech sector by smashing forecasts

Chip-maker Intel had a record first quarter, with profits almost quadrupling. That's good news all round...

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Last Updated: 31 Aug 2010

Glad tidings from tech industry bellwether Intel: the world’s biggest chip-maker says it had a record first quarter of 2010, with profits up 288% to $2.4bn – much better than Wall Street was expecting. That’s obviously great for Intel, which appears to be through its recessionary difficulties. But the wider point is that if Intel is doing well, that means companies are starting to invest in new technology again – which tends to suggest a recovering economy. So we all have reason to celebrate these results…

Intel trounced Wall Street’s forecasts in the first three months of this year: revenues soared 44% to $10.3bn, while its profit margin – a keenly-watched indicator of its financial health – shot up from 45% to 63%. Better still, CEO Paul Otellini reckons that Intel will be able to maintain a margin of about 64% for the rest of 2010 (you’ve got to love those tech sector margins). So it looks as though he was right last year when he suggested that things had got as bad as they were going to get. ‘We saw signals of it bottoming then, and now a year later the industry is nearly fully recovered,’ he told Reuters today (this is CEOese for 'I told you so').

The reason Intel is doing so well is that some of those companies who cut back on their IT spend during the recession appear to be returning to the market again. Although it’s easy enough to delay upgrades for a year or two, they can’t be put off indefinitely. Now it looks as though people are piling back in to buy new servers and more powerful laptops, so they’re obviously feeling a lot more confident about their future prospects. And with all that pent-up demand, it could be that tech companies – who were hit harder than most by the slowdown – are going to rebound a lot faster too.

No wonder, then, that this news from Intel pushed tech stocks up across the board (Intel itself enjoyed a 4% bounce – since it’s now selling more powerful i.e. more expensive chips, it should do particularly well). After all, when a company buys a new server, it’s not just Intel that benefits; all the other bits of the supply chain make money too. So what’s good for Intel tends to be good for the sector - and in this case, perhaps for the economy as a whole. And we're only going to buy more and more technology. It'll be chips with everything for a while yet.


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Intel perks up tech sector by smashing forecasts
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