Intel Guides Higher; Recovery in Chips

This morning, Intel (INTC) raised its third-quarter guidance. The company now anticipates revenues to be about $9 billion, versus its previous forecast of $8.5 billion. Gross margins are expected about 53%, with more upside than downside likely to the projection.

This was the second piece of bullish news about the semiconductor industry released this week. On Wednesday, Gartner Inc. raised its forecast for worldwide semiconductor sales. The consulting firm now expects a 17.1% decline, a huge improvement from its previous forecast for a 22.4% drop. Gartner credited lower prices on LCD TVs and computers as well as China’s stimulus package for helping the industry.

Both Intel’s guidance and Gartner’s forecast further validate what I first said in March - the chip industry is early stages of a recovery (read “Are Chipmakers Finally Stabilizing?”). Chipmakers have brought down inventory levels and demand is showing signs of improvement. This is why full-year earnings forecasts continue to be raised on several chipmakers.

Given today’s announcement, I think it is likely that Texas Instruments (TXN) will raise its guidance when it provides a third-quarter update on September 9th.

Though semiconductor stock prices have risen, more upside is possible. Dell (DELL) said last night that corporate spending won’t truly start to rebound until next year - sentiment echoed by other tech companies. Furthermore, the economy is just now starting to bottom. Finally, the introduction of Windows 7 could provide corporations the impetus to replace computers that are at or near replacement age.

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