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Intel Rides Microprocessor Demand

SAN FRANCISCO - Finally, some good news for Wall Street.

Despite high gas prices and widespread fears of an economic downturn, Intel, the largest chip maker, reported a sharp rise in profit on Tuesday and said strong demand worldwide for computer chips would continue in the current quarter.

"Independent of the climate, we had a great second quarter," Stacy J. Smith, Intel's chief financial officer, said in an interview on Tuesday. "What we're seeing is pretty strong demand."

The company said its net income for the quarter rose 25 percent to $1.6 billion, or 28 cents a share, from the year-ago quarter.

The company said revenue rose 9 percent to $9.5 billion for the second quarter that ended June 30.

The net income was well above the expectations of Wall Street analysts, who had projected earnings of 25 cents a share and revenue of $9.32 billion, according to a survey of analysts by Thomson Financial.

"As we enter the second half, demand remains strong for our microprocessor and chipset products in all segments and all parts of the globe," Paul S. Otellini, Intel's chief executive, said in a statement.

Intel's results included $96 million in revamping charges, rather than the $250 million in charges it had previously expected.

Intel's gross margin, a closely watched barometer of profitability, rose to 55.4 percent, slightly lower than the roughly 56 percent the company had predicted, but an improvement over 46.9 percent in the year-ago period and 53.8 percent in the first quarter.

Intel executives said the company had missed its projections because computer makers shifted to lower-priced chips, like the Atom processor that is used in low-cost mini-notebook PCs known as netbooks.

Despite its optimism, Intel's missing its target on profit margins tempered Wall Street analysts' enthusiasm. Intel shares rose only slightly in after-hours trading to $20.95. Before the earnings report was released, the stock had increased 24 cents to close at $20.71.

"Intel is executing as well as they have in 10 or 15 years," said Cody Acree, an analyst with Stifel Nicolaus.

Mr. Acree added that electronics were proving to be somewhat immune to much of the slowdown that is hitting other consumer products. "This is a segment of the economy that is continuing to see very resilient demand," he said, pointing to the huge sales of the Apple iPhone 3G last week.

In a conference call with analysts, Mr. Otellini said that notebook sales overtook sales of desktop computers for the first time during the second quarter, faster than expected. "The crossover happened six months sooner than we thought," he said.

Intel, based in Santa Clara, Calif., has been buoyed lately by a wave of new products. The new Atom processor takes Intel into a high-growth sector that analysts hope will open up markets in emerging countries while expanding the company's market in the United States.

On Monday, the company released the second generation of its Centrino mobile technology, which offers higher performance and faster Wi-Fi than the 2003 original while using far less power. Analysts expect the product to further bolster Intel's mobile division.

Mr. Otellini said that the company was continuing to take steps to alleviate the problem of an oversupply of NAND flash-memory chips, which drove down prices, but he declined to elaborate on the measures.

Intel's second-quarter report comes amid broadening concerns about the economy and its impact on demand from consumer and corporate spending. Intel expects revenue in the third quarter could increase as much as 5 percent to $10.6 billion and its gross margin could rise to 58 percent. Analysts have forecast revenue of $10.07 billion, on average.

Intel faced some setbacks during the second quarter, including the news that the Federal Trade Commission was formalizing its investigation of Intel's business practices. The company was also fined $25 million by the Fair Trade Commission of South Korea, which charged that it had violated antitrust law there.

Still, Intel has continued to benefit from the missteps of its chief rival, Advanced Micro Devices, which for the last year and a half has endured product delays, technical problems and high costs related to its acquisition of the graphics chip maker ATI Technologies.

"I'd be a little surprised if we didn't gain share, but I'll wait for the numbers," Mr. Smith said, referring to the industry practice of releasing market share figures immediately after earnings season.

On Friday, A.M.D. announced it would take $880 million in charges in the second quarter, as well as a $32 million revamping charge, largely from severance payments. In April, A.M.D. posted its sixth consecutive loss; the company is scheduled to report earnings on Thursday.

During the second quarter, A.M.D. overhauled its mobile chip lineup, giving investors hope that its competitive position could improve.