SAN FRANCISCO (Reuters) - Intel Corp forecast quarterly revenues well above Wall Street's estimates, defying fears the world's top chip maker is struggling to find its footing as personal computer sales growth wanes.
Sales held up strongly despite a hiccup in sales of its Sandy Bridge processors after the discovery of a chipset design flaw. This eased fears that the growing popularity of smartphones and tablets would eat into the PC chip business.
Shares of Intel rose 3.5 percent in extended trading after closing up 1.22 percent on Nasdaq. The stock has shed about 12 percent of its value since Apple Inc's first iPad hit store shelves in April last year, while the Standard & Poor's 500 Index has gained 11 percent.
"The PC Client Group revenue was much higher than anyone anticipated. Everyone expected some poor numbers there due to the Sandy Bridge delays," said Avian Securities analyst Win Cramer.
Concerns that iPad tablets are squeezing traditional PC sales have hung over Intel, along with worries across the electronics industry about supply constraints after Japan's March 14 earthquake and tsunami.
Computer sales in the first quarter fell for the first time since 2009 as the iPad attracted buyers in droves and Japan focused on recovering from the earthquake and tsunami, according to research firm Gartner.
Tuesday's report was the first to include Intel's $7.68 billion acquisition of data security firm McAfee and its $1.4 billion purchase of Infineon's wireless unit. The fiscal first quarter also had one more week to it than usual.
With those additions, Intel said revenue in the current quarter would be $12.8 billion, plus or minus $500 million.
Analysts had expected revenue of $11.59 billion for the first quarter and $11.87 billion for the second quarter, according to Thomson Reuters I/B/E/S.
CFO Stacy Smith said he saw no hindrance to Intel's chip production despite supply constraints that are limiting the shipment and availability of electronics parts from Japan.
"We don't see anything that limits our ability to produce to (meet) demand, and we're not seeing anything that limits the ability to make PCs," Smith told Reuters in an interview.
The company reported a 25 percent jump in first-quarter revenue to $12.8 billion, beating analysts' average estimate of $11.59 billion according to Thomson Reuters I/B/E/S.
Net income was $3.2 billion, up 29 percent over the year-ago period. Excluding items, Intel earned 59 cents a share, above the consensus forecast of 46 cents.
Intel has no factories in Asia's second-largest economy, but investors have worried that hiccups in the supply of components made there could stall PC production. Some analysts say customers may have rushed to buy inventory after the disaster, helping front-load sales.
Up to 10 percent of Intel's revenue comes from manufacturers in Japan.
With its shares trading at about 9.5 times expected annual earnings and paying a dividend yield of over 3 percent, some analysts say Intel has become a bargain despite its problems.
It is expected to ramp up sales of its Sandy Bridge processors over the next several months along with recently launched versions aimed at servers.
In February, shipments of Intel's new cutting-edge Sandy Bridge processors were interrupted after a flaw was discovered in a chipset used alongside them.
Intel said the defect would mean $300 million less in first-quarter revenue, and cost $700 million to repair and replace. But it expects the lost sales to be made up for in later quarters.
Gross margins fell after a record 67.5 percent in the fourth quarter. Intel posted a 61 percent gross margin in the first quarter, about level with the 61.28 percent expected.
But the 62 percent forecast for this quarter appeared just a bit weaker than anticipated.
"What is most telling: they were able to deliver such a powerful top line with average selling prices up across the board," said JMP securities analyst Alex Gauna.
"If there was anything I would poke a hole in, I would like to see a better gross margin profile, especially with the McAfee acquisition."
Additional reporting by Yinka Adegoke, Jennifer Saba and Poornima Gupta; Editing by Edwin Chan and Richard Chang