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Alcoa (AA) kicked off the mid-year earnings season, meeting expectations and lifting the Street’s spirits. Investors next turned their attention to technology, and chip behemoth Intel proved up to the task. In fact, the company reported its best quarter ever. This is a profound statement, since Intel (INTC) has been in existence for over 40 years and serves as a bellwether for the broader technology sector.

Revenues for the June period were $10.8 billion, compared with our estimate of $10.25 billion and the year-earlier tally of just over $8.0 billion. What's more, earnings per share came in at $0.51, versus our $0.43 expectation and last year's $0.07 loss. The Enterprise (corporate sector) was the primary factor behind the strong bottom-line showing, while a richer product mix also contributed.

Moreover, management expects these positive trends to continue. In fact, Intel is now projecting revenues of $11.6 billion (plus or minus $400 million) for the September interim, which is a sharp improvement from last year's $9.4 billion figure. Also, the gross margin is likely to be roughly 67%, which is very solid relative to historical levels. As a result of the recent news, we have boosted our share-net estimates for 2010 and 2011 from $1.85 and $1.95, respectively, to $2.05 and $2.20.

Intel shares have climbed sharply in price, of late. And many other technology names have quickly followed suit, given the company's position as a bellweather for the broader industry. Not only did investors show love to the semiconductor names, such as Advanced Micro Devices (AMD), but the positive trends in hardware spending that Intel recounted pushed shares of PC makers like Hewlett-Packard (HPQ), Dell (DELL), and Cisco Systems (CSCO) higher, as well.

Still, at the current price, Intel stock offers solid capital gains potential over the next 3 to 5 years.

However, there are a few issues to consider for the near term. First, though the global economy appears to be recovering, there are signs that the rebound might not be as strong as was initially expected. Also, management's gross margin guidance of 67% for the September quarter may be a bit optimistic, given recent trends. In addition, if end-market demand sags due to economic concerns, inventory in the distribution channel may become a burden, which has been a key factor behind the semiconductor industry's recent struggles. Finally, a bottom-line setback may cause an elevated level of share-price volatility.


About The Company: Intel Corporation is a leading manufacturer of integrated circuits. In addition to primarily supplying manufacturers of personal computers, the company serves a multitude of other global markets, including communications, industrial automation, military, and other electronic equipment. Intel’s product line consists of microprocessors, with the Pentium series being the most notable. It also manufactures microcontrollers and memory chips, and the company sells computer modules and boards, and network products.