Color me surprised. Intel (NASDAQ:INTC) pulled out a stronger second quarter than I had expected. Let's dispense with the cold, hard numbers up front:

Dollars in Millions

Q2 2008

Q2 2007

Change

Sales

$9,470

$8,680

9.1%

Net Profit

$1,601

$1,278

25.3%

Owner Earnings

$1,735

$1,213

43.0%
 

Q2 2008

Q2 2007

Change*

Gross Margin

55.4%

47.0%

8.4

Operating Margin

23.8%

15.6%

8.2

Net Margin

16.9%

14.7%

2.2

*In percentage points.

Sales came in at the top end of management guidance rather than the bottom, thanks to strong demand for low-cost notebook chips. Unfortunately, that trend also dampened the gross margin a bit -- but the final tally is still much stronger than the year-ago numbers across the board.

It's not all wine and roses, though. Archrival Advanced Micro Devices (NYSE:AMD) seems due to recapture a bit of the high-margin server chip market in coming months. The botched Barcelona launch took those market-share points away to begin with, but the underdog has gotten its act together lately and is on track for the launch of the next-generation Shanghai chip on a 45-nanometer manufacturing process. Intel got to 45nm first with all the power and cost savings it brings, leaving AMD behind on the 65nm rung of the manufacturing ladder for months. But that advantage is disappearing again, leveling the playing field. There was no shockingly great news in the earnings report that would override this new reality.

That said, don't forget that Intel is far and away the market leader in the microprocessor space. The company spent $2.5 billion on share buybacks this quarter alone, and around $7.3 billion over the past year. AMD's market cap is a mere $3 billion after today's 5% run-up, and the enterprise value, with warts, debt, and everything else, is $6.4 billion.

The Federal Trade Commission and other antitrust entities would never allow Intel to buy its only real direct competitor, and I'm glad for that. This rivalry is on par with IBM (NYSE:IBM) and Oracle (NASDAQ:ORCL), or Netflix (NASDAQ:NFLX) and Blockbuster (NYSE:BBI), for the sheer entertainment value of the dueling press releases and product launches. And in all of those cases, the competition drives both companies to greater efficiencies, quicker innovation, and bolder strategies than a monopoly could ever produce.

The upshot of all this is that AMD is due for an upswing and Intel for a bit of pain -- but the tables will inevitably turn again in a year or two. It's just the nature of the beast, whether you want to ride it or not.

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