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Originally published Tuesday, July 17, 2012 at 10:07 PM

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Intel warns of slower growth even as profit rises

Intel reported Tuesday that it hit its earnings targets, but slow economic growth in important markets, and a transition to computing that relies less on personal computers and more on mobile devices, will hold growth in the third quarter.

The New York Times

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SAN FRANCISCO — Intel is struggling amid the world's pain.

Sales of its semiconductors, which power personal computers and computer servers, were just slightly higher in the second quarter than the year before, the company reported Tuesday.

This was due to both slow economic growth in key markets, and a wrenching transition to new kinds of computing that rely less on personal computers and more on mobile devices. Intel also warned about the outlook for the third quarter.

"As we enter the third quarter, our growth will be slower than we anticipated due to a more challenging macroeconomic environment," CEO Paul Otellini said in a statement accompanying the earnings report.

Intel said profit in the second quarter rose 3 percent to $2.8 billion, or 54 cents a share, from a year earlier.

The company said revenue climbed 5 percent to $13.5 billion.

Intel appeared to have sacrificed some of its gross profit margin for the higher revenues. Gross margins were 63.4 percent, compared with 64 percent a year earlier.

Still, the profit beat the expectations of Wall Street analysts, who had forecast 52 cents a share and revenue of $13.56 billion, according to a survey by Thomson Reuters.

Intel, based in Santa Clara, Calif., is the world's leading supplier of semiconductors, a business dependent on consumer demand for personal computers and corporate need for PCs and computer servers. Slow economic growth has crimped demand in both of those markets.

"Intel is relying heavily on emerging markets for their growth, and right now those markets aren't looking so good," said Douglas Freedman, an analyst at RBC Capital Markets.

In addition, business and consumers are finding alternatives to PCs in smartphones and tablets, where Intel either has no presence or supplies lower-margin chips. These devices work with servers in cloud data centers.

Clouds use servers more efficiently, which also lowers demand for the products.

Intel has fought back by investing in ultrabooks, a kind of lightweight laptop computer.

Large-scale sales of these laptops began a few months ago and have so far been modest.

Despite the warning, Intel shares didn't move much, gaining 25 cents during the day, then losing 28 cents in after-hours trading.

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