Intel (INTC): 'Another Blowout Quarter'

"Otellini expanded his thoughts on the company's earnings call last night, telling analysts: 'Intel's growth continues to run ahead of economic growth, reflecting what we believe is a fundamental shift, driven by Internet adoption.'

"The world's largest maker of semiconductors reported a profit of $2.9 billion, or 51 cents per share, reversing a year-ago loss of -$398 million, or -7 cents per share.

"The year-ago figure was reduced by the impact of a $1.45 billion fine imposed by the European Commission for what it deemed to be anti-competitive practices. Wall Street analysts were bullish heading into the quarter, but the results easily beat their 43-cent EPS estimate.

"Sales grew by 34% to $10.8 billion. Revenue, gross margin, operating profit, and earnings per share were all records. The company's gross margin of 67% was up four points from the first quarter and better than the company expected. Operating profit rose to $4 billion and as a percentage of revenue reached 37%.

"Intel said it performed better than it normally does based on seasonal patterns in all corners of the world. Intel generated approximately $3.5 billion in cash flow from operations and grew its total cash by $1.4 billion to approximately $18.0 billion.

"Management talked about various drivers for the business on the conference call. One was the Atom processor, which is a key product for the company's consumer-driven business segments.

"It is the chip in many notebook computers but Otellini noted that it is going into an increasing number of consumer electronics products beyond notebooks.

"Otellini added that the new growth in Atom this year could come from non-PC products with embedded Atom processors and from products like Google TV that were launched last month.

"Overall, Intel reported an excellent quarter all around, and while Wall Street and analysts have been skeptical on the name, the company just delivered record results and upbeat guidance.

"We continue to view Intel as a solid investment whose operational improvements in recent years have been underappreciated by Wall Street.

"We expect the company to benefit from the corporate PC and server upgrade cycle that is only just beginning. We'd place about a $28 target on the stock, which is about 13x 2011 EPS estimates plus its $2.00+ in net cash."

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