Multinational Intel, Ireland's biggest employer, posted a 44 per cent rise in quarterly profit last night but gross margins missed its target and shares fell nearly 5 per cent.
The numbers underscored the challenges Intel still faces despite having clawed back market share in a continuing, bruising price war with rival AMD and despite restarting profit growth after five quarters of slumping performance,.
Profit margins at the company, which employs 5,500 in the Republic, were hit as lower prices for personal computer processors and weak demand for memory chips for mobile telephones offset higher revenue and unit volumes.
Expectations that the technology bellwether is on the rebound have sent Intel shares up 30 per cent so far this year, and almost 9 percent in the last month alone.
Gross margin in the second quarter was 46.9 per cent, short of the company's forecast of 48 per cent. Intel said it expected the margin to be 52 per cent, plus or minus "a few points," in the third quarter.
"We did see more pricing pressure than we expected, and that depressed margin by one point," Intel chief financial officer Andy Bryant said, adding that weakness in flash memory also contributed to the low margin.
For its second quarter, Intel posted net earnings of $1.3 billion, or 22 cents per share, compared with $885 million, or 15 cents per share, a year earlier.
Excluding a special gain of 3 cents per share related to a tax item, Intel's profit was 19 cents per share, in line with the average estimate. Revenue was $8.7 billion, up 8 per cent from a year earlier, and higher than the $8.5 billion forecast by Wall Street.
Intel, which lost market share to smaller rival Advanced Micro Devices, has fought back with a slate of new chips and price cuts on older ones. AMD countered by slashing prices, and is set to roll out a new processor in August.
"They (Intel) had lower average selling prices, which I'd say reflects their move to sell older product or could be due to a more competitive AMD," said Jane Snorek, an analyst with First American Funds.
Margins also could have been hit by a shift away from more profitable notebook computers toward desktops, as well as a faster roll-out of advanced production techniques, which carry high start-up costs.