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Economic gloom brings flat Q3 and pessimistic forecast for Intel

Intel on Tuesday reported third-quarter sales of $13.5 billion (£8.36 billion) and net income of $3 billion (£1.86 billion), flat against the chip giant's second-quarter performance but beating financial analysts' projections and its own revised outlook.

Looking ahead to the final quarter of 2012 and the start of 2013, Intel offered a pessimistic forecast that reflects uncertainty in the global economy and the PC industry in particular - and sent Intel stock tumbling by around 2 per cent after its earnings were made public before market close.

"Our third-quarter results reflected a continuing tough economic environment," Intel president and CEO Paul Otellini said in a statement.

The chip maker is banking on thin-and-light ultrabooks, a product category Intel has been pushing hard in recent months, as well as redoubled efforts to penetrate the smartphone and tablet markets, to help light the way forward to growth more in line with the sort that the company enjoyed in the PC boom years.

"The world of computing is in the midst of a period of breakthrough innovation and creativity. As we look to the fourth quarter, we're pleased with the continued progress in ultrabooks and phones and excited about the range of Intel-based tablets coming to market," Otellini said.

Intel reported positive news for its server and storage business - Data Center Group revenue of $2.7 billion (£1.67 billion) was up six per cent from the third quarter of 2011, though down sequentially - but the company had a more distressing picture to offer for its PC division, responsible for the lion's share of its overall business. The PC Client Group had third-quarter revenue of $8.6 billion (£5.32 billion), flat against the second quarter but down eight per cent year-over-year.

Revenue for other Intel chip products came in at $1.2 billion (£740 million), a six per cent uptick from the second quarter but down 14 per cent from the year-ago quarter, Intel said.

Jack Gold, principal analyst for J. Gold Associates, described Intel's quarter as "not great, but maybe not as bad as many expected either."

"Clearly the market is soft in both PC and server sales for them, though servers did better than PCs. I think Intel is waiting for two events to kick them into high gear," Gold said.

"The first is the release of Windows 8 and the hoped-for upgrades that will come with that. The second piece for Intel is the need to get Atom more involved in mobile sales," he continued. "They have a few design wins, but many of the tablets won't come out until after Win 8 is released. And it will take a few months to see if that can lift the Intel Atom fortunes."

Gold also warned that Windows 8 was unlikely to be a magic pill for Intel or the larger PC market, at least not immediately, saying that it was "not all that clear" that enterprise customers would be rushing to upgrade to the new OS.

Patrick Moorhead, principal analyst for Moor Insights & Strategy, said the 26 October release of Microsoft's next-gen operating system was a crucial date on the calendar for Intel.

"With the macroeconomic markets down, Intel will need to rely on Microsoft to carry the ball to get people excited about Windows 8 and convince them to buy PCs instead of phones and iPads with the disposable income they do have," he said. "Intel has done a great job investing in unique form factors like tablets, hybrids, convertibles, and ultrabooks and now their channels and customers need to deliver for everyone to mutually succeed."

Moorhead added that Intel successfully dealt with the downturn resulting from the 2008 financial crash and with more uncertain times ahead, would "be working to moderate fab utilization as not to build too much inventory, and when the market picks up, be able to quickly scale again."