Intel Corp said a surge in demand for its microprocessors through September had helped the Santa Clara chip maker to beat its own revised estimates for third quarter revenues, with unit shipments reaching record numbers in the period. However, third quarter net profits were up just 1.0% at $1.56bn while revenues grew by 9.4% to $6.73bn. Gross margins were held back by price erosion in components packaged with Intel’s microprocessors (mainly SRAMs and single edge contact cartridges) said Andy Bryant, Intel chief financial officer. However, most geographical segments showed increasing demand for PC products in the quarter (with the exception of Japan) and demand continued to be strong through October, said Paul Otellini, executive vice president with Intel’s Architecture Business Group. The news comes on the back of similarly bullish quarter from rival microprocessor firm Advanced Micro Devices Inc, signaling a return to more settled conditions in the PC industry after the drastic inventory corrections pushed through by the big OEM PC manufacturers in preceding quarters. OEM inventories seem to have recovered, Otellini continued. Intel’s own inventories fell by $125m in the quarter as a direct result of this increased demand. Additionally, Intel said it had seen record quarterly revenues in its networking products, while maintaining the company’s number one position in the flash memory market. CFO Bryant admitted that Intel had …got ahead of itself last year which had led the company into growing its investments too quickly. However, he said that expenses were now back under control and that Intel had succeeded in cutting headcount by 2,000 since the start of the year. This will rise to around 3,000 before the end of December, he said, encompassing further reductions over and above those previously announced. But while Intel continues to cut its direct salary costs, the less visible expenses involved in buying back 20 million shares to augment the firm’s stock options plan ran to an incredible $1.7bn in the this quarter alone, more than twice the money spent on capital expenditure in the same period. Looking ahead, the company said its growth through 1999 would depend upon the expansion of the internet combined with an ability to push Intel chips, particularly the Pentium II Zeon, into higher performance markets previously unavailable to Intel architectures on a price performance basis, such as the server market. A further speculative element would involve the recovery of demand in Japan and Asia, Otellini said.