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Chip behemoth Intel (INTC Free Intel Stock Report) reported reasonably decent results for the September quarter. Revenues came in at nearly $13.5 billion, which was slightly higher than our $13.3 billion estimate. Earnings per share were $0.58 for the period, which was $0.06 above our initial expectation. Both the top- and bottom-line results were below last year's comparable-quarter tally, which doesn't surprise us, given the current lackluster state of the chip market.

On the plus side, the Other Intel Architecture group registered a sequential-quarter revenue gain of 6%, the gross margin was 130 basis points above management guidance at 63.3%, while the tax rate was 24%, or 4% lower than management expected. Conversely, Data Center Group comparisons fell 5% sequentially, while PC Client Group revenue was essentially flat.

However, INTC stock traded lower following the third-quarter earnings announcement. We believe this was due to the company's fourth-quarter guidance. More precisely, revenues are likely to be $13.6 billion (plus or minus $500 million), while the gross margin might well be about 57%. Both of these assumptions are below our prior expectations. Intel's results are being held back by a slumping personal computer market. (Intel chips are found in about 80% of PCs.) The PC market is being constrained by an uneven global economy, coupled with elevated demand from smartphones, tablets, and notebooks. Although Intel has a presence in these markets, its bread-and-butter business remains personal computers. 

As a result of the recent news, we have reduced our December-quarter revenue expectation from nearly $14.3 billion, to $13.6 billion. For the full year, we now expect sales of $53.475 billion. We have sliced a penny from our December-quarter share-net assumption, which is now $0.60. All told, we now look for share net of $2.25 for 2012, a $0.05 increase from our view in early October. This reflects the company's relatively solid performance during the September period. Bottom-line results may hold up relatively well during the December period, thanks to management's tight rein on expenses, coupled with manufacturing efficiencies. We have left our 2013 bottom-line estimate intact at $2.30 a share.

We are cautiously optimistic regarding Intel's long-term fortunes. Though the company may struggle in the near term due to the global economic headwinds, we believe its immense size and financial wherewithal will enable it to make it through the storm in pretty good shape. The company has been making acquisitions, along with internal development efforts, in order to penetrate more lucrative segments of the semiconductor industry, including smartphones, notebooks, tablets, and security products. Though the mature PC division accounts for a majority of the company's revenues at present, we look for this percentage to gradually decline over time. 

Downside risks maybe outweigh upside potential in the near term, though patient long-term investors might well be rewarded with above average 3- to 5-year total return potential from this high-quality Dow-30 issue.

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.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.