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Intel has posted a 44% jump in quarterly profit, despite continued microprocessor pricing pressure, and promised a stronger second half and beyond thanks to its new 45-nanometer chip-making technology.

By Rhonda Ascierto

While average selling prices for microprocessors “held up a little better than expected” during the second quarter and pricing pressure from Advanced Micro Devices would continue, Intel chief executive Paul Otellini was notably upbeat about the rest of the year, on a conference call with analysts.

Higher unit sales offset lower prices for the company’s main microprocessor business. Intel CFO Andy Bryant said the microprocessor pricing environment would continue to be fierce in the current quarter.

But Intel hopes to deflect that by continuing to focus on high-end servers and notebook products where large enterprise sales are driven not by price but rather by performance and energy efficiency. “You will see us extend our lead in power efficiency from where it is today, as we bring out 45-nanometer products,” he said.

Indeed, Intel’s move from the larger 65-nm manufacturing node to 45-nm will likely prove significantly beneficial. It promises a 15% to 45% boost in microprocessor performance, Otellini said, depending on the application and product type. It also promises about a 25% reduction in silicon die size, which means Intel can get more chip die on a single silicon wafer - and that translates into lower costs.

Otellini noted that Intel was already sampling all versions of its 45-nm products, including notebook, desktop and server chips to OEMs, which he said was “a good sign” of the readiness of its forthcoming product line. Expect announcements at the company’s annual develop forum in September. “You’ll see a bit more of the product line there,” he said. AMD only recently moved to the 65-nm node.

Intel posted a profit of $1.3bn, or 22 cents per share, for the second quarter, which was up from $885m, or 15 cents, a year ago. Sales rose to $8.7bn from $8bn. The numbers beat average analysts’ expectations.

However, the Santa Clara, California-based chipmaker disappointed Wall Street by posting gross margin for its second quarter at 46.9%, lower than its forecast of 48%. The execs said weak demand for NOR flash memory was the main culprit. “We’re more comfortable about second-half margin,” Bryant said. For the current third quarter, he forecast gross margin of 52% and revenue of between $9bn and $9.6bn.

Shares in the company fell nearly 5% in after-hours trading to $25.05 on the Nasdaq yesterday.

Our View

On yesterday’s call, Intel said it was hurt, again, by lower prices for low-end notebook chips. And until it ships its higher-end 45-nm products in volume, expected in 2008, the company won’t have a much of product line for the lower end of the market and will continue to struggle against AMD.

ADM, however, has its own problems. On yesterday’s call, the execs said Intel had sorted out its inventory issues in the current quarter but that there was excess inventory sitting elsewhere in the channel. That translates to AMD’s excess inventory. AMD reports its results tomorrow.