Quarterly results at Intel (INTC) topped expectations by a wide margin, in part because of strength in a massive yet much-maligned slice of its business: personal computers. Cloud revenue rose 50%, in line with the gains other companies are seeing, notes Richard Moroney, editor of Dow Theory Forecast.

However, PC-centric revenue rose a surprising 16%. Within the PC group, connected home products, modems, and wireless chips posted 66% revenue growth, but core PC products and services managed an unusually robust 11% gain.

In recent months, Intel shifted some of its assembly lines from newer 10-nanometer semiconductors to 14-nanometer products designed for entry-level computers and consumer products. The company made this move to cope with higher-than expected demand, which has given the company unusual pricing power

According to researcher Gartner, global PC shipments rose slightly in the September quarter, the second consecutive quarter of stable demand, mostly driven by the corporate market. Gartner expects the Windows 10 upgrade cycle to power corporate-PC sales over the next two years.

In October, Intel reiterated plans to have 10-nanometer machines ready for the 2019 holiday season. This affirmation matters because as recently as six months ago, the company expected those products to hit the market in the first half of 2019.

Delays announced over the last few months are one reason for the stock’s decline since early June, and we find Intel’s confidence in the current target encouraging, particularly given the recent production disruptions.

Encouraging trends In the 12 months ended June, Intel’s operating margins rose to 45.4% from 40.9%. Last month, the company increased its margin guidance despite expected launch costs for 10-nanometer products in the year ahead.

A combination of higher volumes, a shift toward higher-margin chips, and aggressive cost controls gives us confidence in the company’s projection. In the first nine months of 2018, Intel has spent more than $8 billion on stock buybacks and more than $4 billion on dividends.

Over the last three years, the company grew its dividend at an annualized rate of 8% and reduced its share count nearly 5%. Intel plans to continue its aggressive capital returns, and has the cash flow to make good on those plans.

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