Otellini: Intel Low-end Chip Sales Driven By Non-U.S. Channels

"Channel sales were up sequentially this quarter in a seasonally down period," Otellini said, adding that "Our channel customers tell me they are making very good margins on Intel products."

Otellini said Intel's edge in desktop chip sales was a result of the performance of its emerging market channels. He also described a "better Intel low-end mix in notebooks outside of the U.S." and admitted being perplexed by a lack of commensurate gains in its U.S. distribution channel.

"For the life of me, we can't figure that out," he said.

For the quarter, Intel reported earnings that exceeded what were already very high expectations, though a lower-than-projected gross margin dampened the news to some extent. The Santa Clara, Calif.-based chip maker posted second-quarter net income of $1.3 billion, up 44 percent over Q2 2006. Revenue for the quarter was $8.7 billion, up 8.4 percent year-over-year. But while the vendor had targeted a gross margin of 48 percent for the quarter, it reported an actual figure of 46.9 percent, blaming lower-than-expected sales of its NOR flash products for shaving off a full point from the number.

"It was a more competitive pricing environment than we anticipated in Q2," said Intel CFO Andy Bryant.

"We expect unit prices to be down on microprocessors," he said later in the call, though he also noted that overall, Intel "expects margin improvement over the rest of the year."

Otellini said the launch of Intel's 45 nanometer processors, as well as the projected expansion of its notebook, server and mobile markets, would strengthen the company's position in the second half of 2007.