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Intel beat Wall Street expectations on Tuesday, announcing Q2 financial results with revenue of $9.5 billion, operating income of $2.3 billion, net income of $1.6 billion, and EPS (earnings per share) of 28 cents.

"Intel had another strong quarter with revenue at the high end of expectations and earnings up substantially year over year," said Paul Otellini, Intel president and CEO, in a statement. "As we enter the second half, demand remains strong for our microprocessor and chipset products in all segments and all parts of the globe."

Revenue was up 9% year over year, down 2% sequentially, and above financial analyst expectations of $9.3 million. Operating income was up 67% year over year and up 9% on Q1. Net income was up 25% year over year and up 11% on Q1. And EPS was up 27% year over year and up 12% on Q1.

Intel reported gross margin of 55.4%, up from 53.8% in Q1 and slightly below the midpoint of the previous expectation, as growth in demand for lower-priced notebook PCs resulted in a lower than expected microprocessor ASPs (average selling price).

Looking to Q3, Intel estimated revenue between $10 billion and $10.6 billion. The MPU maker maintained its full-year expectations with R&D at $6 billion and capital spending at about $5.2 billion.

"We emerge broadly encouraged by Intel delivering Q2 revenues ahead of above seasonal guidance and raising Q3 revenue guide vs. street estimates while reiterating calendar year 2008 margin guidance, with flat inventory levels," Tim Luke, a semiconductor market analyst at Lehman Brothers said in a research note this morning.

"Lower notebook ASPs/mix pressured Q2 gross margin may be an ongoing investor focus, but we view Intel as a relative out performer in challenging environment. We believe investor skepticism on guidance may keep somewhat range bound but our EPS estimates edge up.

"In general, we believe Intel's outlook has been supported by several factors relative to other tech bellwethers including a) the momentum around the transition to notebooks b) solid new product traction (notwithstanding Montevina delays), c) the addition of some important new customers (Apple, more Dell consumer retail business momentum at lower end) and d) its broad emerging market exposure while e) also seeing some benefit from a weaker US currency given its export focus to the dollar denominated PC chain," Luke said.

Wall Street seems to agree with Lehman's optimism. Intel's stock, INTC, inched up this morning trading at $21.01 as of 11:04am eastern after its Tuesday close of $20.71. Intel's stock starkly contrasts with that of its MPU competitor AMD, which last week announced a $948 million Q2 change and saw its stock hot a new 16-year low below the $5 mark.

INTC also contrasts with chip industry bellwether Nvida's stock, NVDA, which took a dive last week to $10.72. The stock has since recovered slightly, trading at $11.08 as of 10:48am US  eastern time, yesterday morning, but is far from its $21.02 it closed at just one month ago on June 16. The GPU maker's stock was slammed after the company announced product failure issues and a $150 million to $200 million charge for its fiscal Q2 2009, ended this month.

AMD is scheduled to report its Q2 numbers tomorrow. Nvidia is scheduled to report quarterly results on August 12.

By Suzanne Deffree, Managing Editor, News - Electronic News

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