Intel Beats 2Q Earnings but Investors Wary

Intel‘s second quarter profits were up 25% from one year ago, with good guidance for the rest of the year, but remarkably the stock remained unchanged for the day.

Net income for the quarter was $1.6 billion, while analysts forecasts were for $1.28 billion. They expects 3rd quarter revenue to fall between $10 billion and $10.6 billion, in contrast to analysts’ estimates of $10.05 billion. According to CEO Paul Otellini, “As we enter the second half, demand remains strong for our microprocessor and chipset products in all segments and all parts of the globe”, so why aren’t investors as optimistic?

The biggest contributing factor was news this morning of European legislators expanding their antitrust charges against the company. New charges could be filed against this company this week, claiming Intel gave European Retailers incentives to too sell rival, AMD’s, chips. With similar lawsuits brewing in South Korea, Japan, and the US; Intel could face heavy fines.

Intel not being viewed as the high growth company is used to be, might be another reason for investors not budging at the news. According to Bloomberg, analysts expect sales to rise only 4% for the year, which is half the rate in 2007. Sales also increased only 7% in the 2nd quarter compared to an average of 12% for the previous 3.

The weakening Global economy will impact the semiconductor and chip industry. Last quarter global chip revenue declined 7%, and chip inventories fell about 14.6% which means that that chip manufacturers are cutting back on production, fearing worse times to come. Intel hasn’t been hit as hard as others, but without a clear exit out of this economic slowdown, Intel’s bottom line could be effected by the end of the year.

Intel is down around 20% so far year to date, but has a much stronger outlook than one year ago. With increasing demands in developing countries, and the introduction of the Atom chip, Intel has the potential to beat all analysts expectations for the coming year. The company is also facing a lot of pricing pressure from AMD, which could see margins further drop. Consumers are no longer as interested in the fastest and most expensive PC’s, as today a $1000 PC with a $150 CPU will usually suffice.