Things are looking up in the technology world, at least if bellwether chip giant Intel (Nasdaq: INTC) is any indication. For the fourth quarter, it now expects to ring in $8.5 billion to $8.7 billion, up from $8.1 to $8.7 billion.
So what's up? Well, the company points to robust growth in personal computer sales, and specifically to its processors, chipsets, and other PC components -- the items that contribute the lion's share of revenues. This has implications for all kinds of other companies that serve consumers and their computer needs, including Microsoft (Nasdaq: MSFT), Dell (Nasdaq: DELL), Hewlett-Packard (NYSE: HPQ), and IBM (NYSE: IBM).
Intel also expects a bump in profit margins, with gross margins ringing in around 62%. Gross margins reflect what it costs to produce a firm's products or services, and are calculated by taking revenues and subtracting the "cost of goods sold" (or "cost of sales"). That yields gross profits, which are then divided by revenues, giving you the gross profit margin.
Intel is also planning to write off roughly $600 million for its Wireless Communications and Computing Group (related to a $1.6 billion purchase of DSP Communications back in 1999), which doesn't look like it's going to live up to expectations. According to ZDNet, CFO Andy Bryant explains, "Intel feels its communications products groups are performing as expected, but during a review the company found that its wireless business was not matching expectations. A delay in introducing some cellular phone chips, coupled with a later-than-expected transition to the next generation of cellular phones contributed to the mismatch."
At the moment, the stock trades at a price-to-earnings (P/E) ratio of nearly 50, which is not exactly near the bottom of its P/E range over the past few years. During this period, Intel's P/E hit the 80s, 100s, and higher, while its lows were generally around 20. Keep in mind, however, that within a cyclicals industry like Intel's, buying at the bottom of the cycle can often be the best investment plan. At these times, cylicals often sport very high P/Es because their earnings are way down.
Learn more about Intel and its potential in Microsoft, IBM Put Intel Outside, Kiss Intel, and Is Intel Worth Owning?. If you're thinking of investing, check out the competition, too. Main rival Advanced Micro Devices (NYSE: AMD) has long been viewed the up-and-coming challenger.
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