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Windows 7 and Christmas shopping will make Q4 even better

Intel Corporation has reported third quarter revenues of $9.4 billion, with an impressive net profit of $1.9 billion. Although down from the same period last year, revenue is up $1.4 billion from the last quarter. Its gross margin is at 58 percent, up 7 points sequentially.

The world's largest semiconductor company is widely seen as a bellwether for the semiconductor industry and the health of the global economy as a whole. Strong sales can indicate increasing consumer confidence and spending. Many investors will interpret Intel's strong results as a sign that it is a good time to invest into technology companies, which could help spur further research and development of new technologies and products.

Intel has been successfully following its plan to reduce production in order to reduce inventories of CPUs and chipsets, especially of older models. This enables it to transition more quickly to newer models like the Core i5 without have to take large writedowns from excess stock.  It announced the close of several obsolete fabs in the first quarter and a quick ramp to new 32nm products as keys to success. Intel has also established "inventory hubs" where it holds its products until OEMs require it. These are different from conventional warehouses in that these products are already ordered, but are simply a more efficient means of order fulfillment across multiple customers.

The company spent $2.75 billion in the third quarter, with a large percentage of that going toward the 32nm Westmere ramp. The firm's transition hinges on production going smoothly at Fab D1D, Fab D1C, and AFO (Aloha Factory Operations).

During a conference call, Intel noted that it received a larger than expected boost from the back to school season. It experiences strong notebook sales, especially in the CULV segment. Sales also picked up significantly in China and the Asian market. The firm is also  seeing strong adoption of Nehalem-based Xeon processors as companies are consolidating dozens of older inefficient servers into Xeon racks.

Production of 32nm Westmere chips is already underway. Intel is growing inventories in order to support a strong launch, and production is steadily increasing to meet expected demand due to Windows 7 and the Christmas shopping season.





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