Intel’s Income Rises, but Company Warns of Slower Growth

SAN FRANCISCO — The world’s largest semiconductor maker is getting pounded by poor consumer demand.

Intel on Tuesday lowered its outlook for the second half of the year based on poor retail demand for personal computers powered by the company’s chips and slower growth in emerging markets.

There were some bright spots in Intel’s earnings report for the second quarter; demand from corporations for PCs and laptops was good, and net income rose slightly, the company said, beating analysts’ expectations.

Paul Otellini, Intel’s chief executive, told analysts in a conference call after the quarterly earnings were announced that revenue would be in the “3 to 5 percent range, versus high single digits” of earlier projections. As a result, Intel, based in Santa Clara, Calif., plans to slow hiring for the remainder of the year. At the end of June Intel had about 103,000 employees worldwide.

The rise of alternatives like tablet computers and smartphones has also eroded demand for personal computers. Mr. Otellini expressed optimism that sales of ultrabooks, a kind of lightweight laptop computer that Intel has invested in to compete with the new devices, would eventually revive growth.

“We’ll see $699 systems” for ultrabooks in the fall, Mr. Otellini said. “In a softer selling season these devices become even more attractive.” While just a few kinds of ultrabooks have appeared in the last few months, Mr. Otellini said there were “over 140 designs in the pipeline” for later this year.

Over 40 of these designs, he said, will have touch-sensitive screens similar to Apple’s iPad and iPhone, or the Surface tablet recently announced by Microsoft. Intel would also get a boost from the release of the new Windows 8 operating system by Microsoft, he said.

Intel reported that its net income in the quarter ending in June rose to $2.8 billion, or 54 cents a share, from this time last year. Revenue climbed 5 percent, to $13.5 billion. The company appeared to have sacrificed some of its gross profit margin for the higher revenue, however. Gross margins were at 63.4 percent, compared with 64 percent a year earlier.

Wall Street analysts have been lowering their outlook for semiconductor demand. Analysts had expected 52 cents a share and revenue of $13.56 billion, according to a survey of analysts by Thomson Reuters.

“What’s saving them is lowered expectations,” said Douglas Freedman, an analyst at RBC Capital Markets. “They are performing on their business better than expected, but it is a mixed bag on growth.”

Intel’s performance was significantly better than that of its chief competitor, Advanced Micro Devices. This month AMD warned that its second-quarter revenue would decline about 11 percent from the preceding quarter, instead of the 3 percent growth it had earlier projected. AMD said its results, which will be announced Thursday, had been affected by lower sales of consumer devices and slower economic growth in Europe and China.

Intel is also a major supplier of chips for computer servers, which are increasingly used in cloud-based data systems. Intel said its data center sales grew 15 percent from a year ago, to $2.8 billion. Sales to PC makers rose just 3 percent over the quarter, to $8.7 billion.

Unlike many tech companies, Intel continues to invest heavily in research and development. Intel previously said it would spend $18.3 billion in R&D this year, up from a little over $16 billion in 2011, but Stacy J. Smith, Intel’s chief financial officer, said that because of the lowered outlook, the company was cutting this year’s R&D to $18.2 billion
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