Intel (Nasdaq: INTC ) came into Tuesday night's earnings report with a lot to prove. Archrival Advanced Micro Deives (NYSE: AMD ) had just preannounced weak revenue, signaling a global slowdown in PC sales. The market watchers at Gartner agree, noting that PC sales are flat year over year on a global level but dropping in the key U.S. market.
Against that backdrop, the chip giant reported 5% higher sales year over year at $13.5 billion, albeit with 0.7% weaker gross margins. All of Intel's divisions grew, led by 14% stronger sales in the high-margin data-center segment. The sales performance was in line with Street estimates, and Intel's adjusted net earnings of $0.57 per share came as a modest positive surprise.
All told, that's a very respectable performance. Results in hand, most analysts are sticking to their guns. Nomura reiterated a "reduce" rating on Intel's shares, Williams Financial sticks with its former "hold," and RBC Capital's Doug Freedman stays bullish. Their motivations range from "better than feared" to "Intel highlighted macro weakness impacting PC shipments" around the planet. In the words of Erich Maria Remarque, all is quiet on the Western front.
CEO Paul Otellini is, of course, rather optimistic about his target markets. He underscored rising sales of the thin-and-light Ultrabook product category as a growth driver throughout 2012 and reminded everyone that Microsoft (Nasdaq: MSFT ) should boost computer sales of every ilk -- from tablets to servers -- when its Windows 8 software arrives in the fall. With these catalysts close at hand, Otellini said that "we remain optimistic about our future."
Investors are taking a positive view of the report, as shares jumped 3% overnight. Meanwhile, AMD shares fell 2% ahead of Thursday's full earnings report. Taken together, it looks as if investors think Intel is stealing market share from its smaller competitor right now, and I think that's right. But don't forget that the PC duopoly is up against a brand-new challenge: Both AMD and Intel are staving off fresh jabs from ARM Holdings (Nasdaq: ARMH ) in everything from tablets to data-center monsters.
To keep a close eye on that brewing three-way rivalry, add the key players to your Foolish Watchlist. At the end of the day, Intel remains a rock-solid blue chip with attractive dividends and a bright future. Read up on the best dividend payouts in the Dow in a special report, free for a limited time.