Pentium 4 chip boosts Intel gains

JACK DANIEL, an editor of papers for publications such as the Journal of the American College of Cardiology, spent $1,300 on a computer with an Intel chip to replace a three-year-old machine he said was too slow.

“It was impossible to run anything that was remotely interesting as far as games or graphics go,’ said Daniel. His new personal computer uses a Pentium 4 that’s more than three times faster than the old processor.

Intel, the world’s biggest chipmaker, has benefited from a pickup in demand spurred in part by the economy and also by investments made by chief executive Craig Barrett. Intel said yesterday sales increased at least 17% in the third quarter, the biggest rise in three years, according to a company forecast made last month. Analysts said profit more than doubled to 23 cents a share.

The Santa Clara California- based company which received 83% of its 2002 sales from PC-related chips, has rolled out faster products and put high-speed wireless-networking capabilities in some laptops to stoke demand.

Home computer users, which researcher IDC estimates account for 25% to 30% of Intel’s microprocessor shipments, have responded.

“Most of the strength is being carried on the back of consumers,” said Jimmy Chang, who helps manage $84 billion at US Trust Corp. in New York.

Intel shares gained 32% in the quarter, outpacing a 17% increase in the Philadelphia Semiconductor Index and a 10% rise in the Nasdaq Stock Market. They dropped 19 cents to $30.61 at 9:42am New York time on the Nasdaq, 59% off a closing high of $74.88 in August 2000.

Barrett, 64, has said the only way for Intel to rebound is to spend more to create hot new products. Intel invested $30.4bn in research, factories and equipment in the past three years and plans to spend as much as $7.9 billion more this year.

Intel spent almost three times as much as some rivals Texas Instruments, the world’s number three chipmaker behind Intel and Samsung Electronics who invested $10.4bn on research and plants over the same time.

Advanced Micro Devices, the number two maker of PC processors, spent $4.31bn.

“We’re talking about astronomical sums of money,” said Pierr Johnson, who helps manage $25bn at John Hancock Funds in Boston and holds Intel shares.

Intel’s spending raised concerns among some analysts when Barrett first touted the plans in January 2001. The budget seemed excessive, said Dan Niles, an analyst at Lehman Brothers.

“A year-and-a-half later, they’re getting the benefits of that large investment,” he said. “Adding new production methods first gives you a cost advantage that cuts across everything,” he said.

In April, Intel started selling Centrino, a chip designed to conserve a laptop’s battery and connect wirelessly to the internet at high speeds without needing add-on products.

Centrino, Intel’s biggest introduction this year, is being promoted in a $300m campaign on television, print and billboards. The product sells for as much as $497, among the highest prices for Intel PC chips, and it is more profitable than most desktop chips, analysts said.

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