Intel reported record fourth quarter sales and earnings as it ramped up production for a new generation of microprocessors and saw strong demand during the holiday-selling season. That’s good news for the PC industry, since Intel is the world’s biggest chip maker and its earnings are a bellwether for the whole industry.

“2010 was the best year in Intel’s history,” said Paul Otellini, chief executive of Intel in Santa Clara, Calif. “We believe that 2011 will be even better.”

The results reflect an overall recovery in the tech economy, which is racing ahead of the general worldwide economy in recovering from the big recession. In the fourth quarter, Intel reported revenues of $11.5 billion, up 8 percent from a year ago. Net income was $3.4 billion, up 48 percent from a year ago. Earnings per share were 59 cents, up 48 percent from a year ago.

Analysts expected Intel to report earnings of 53 cents per share on revenues of $11.37 billion. During the same period last year the company had earnings of 40 cents per share. Last quarter, Intel posted 52 cents per share, versus analyst estimates of 50 cents.

For the full year, the numbers show just how gigantic Intel has become. Revenues were $43.6 billion, up 24 percent from $35.1 billion a year ago. Net income was $11.7 billion, up 167 percent from $6.6 billion a year ago. Earnings per share were $2.05, up 166 percent.

At the Consumer Electronics Show last week, Otellini said that Intel’s launch of Sandy Bridge was one of its best ever, with more than 500 PCs being designed around the chip, which combines a microprocessor and graphics on the same piece of silicon. Sandy Bridge threatens the domain of stand-alone graphics chips, made by Advanced Micro Devices and Nvidia. Otellini claimed that Sandy Bridge chips would generate PC sales of $125 billion in 2011 for Intel’s PC partners. Overall, Sandy Bridge sales are expected to account for 30 percent of Intel’s sales in 2011. Otellini called Sandy Bridge the “best microprocessor we have ever built.”

But Intel’s competitors aren’t standing still, and they represent credible threats. AMD has launched its Fusion combo graphics-microprocessor chips at the same time as Sandy Bridge is debuting. And Nvidia announced last week at CES that it has begun Project Denver, a high-end ARM-based microprocessor. Microsoft also announced that it would open up Windows software beyond Intel-compatible chips. That could break the near-monopoly Intel has on the PC. Nvidia, Texas Instruments and Qualcomm are all developing ARM-based chips that could run a future version of Windows.

Intel said for the fourth quarter, PC client group revenue was flat, data center group revenue was up 15 percent, and other chips and Intel Atom chip sales were all flat compared to the third quarter. Average selling prices for microprocessors was up slightly from the third quarter. Gross profit margin, or the percentage profit Intel makes on each chip sold, was 67.5 percent. I can remember that dropping below 50 percent for Intel during tough times.

For the full year, Intel spent $5.2 billion in capital spending. For 2011, it plans to spend $9 billion. Research and development spending will be $7.3 billion. And the company expects revenues to grow 10 percent in 2011.

Intel had never before exceeded $40 billion in sales, Otellini said in a conference call. It was the third quarter in a row that Intel set revenue records. Overall, the PC market grew 17 percent. Otellini said that the internet’s growth is fueling demand for PCs. He said that the internet generated 245 exabytes of data in 2010, more than all the previous years combined. That is expected to grow to 1,000 exabytes in the next five years as 1 billion more people get on the internet.

All of that growth is fueling demand for Intel server chips, which power the data centers that grow with the internet. Otellini said that Intel is positioned to grow with data center expansion and the shift toward cloud computing, or computer services hosted in data centers.

Otellini said “everything gets better” in 2011. The company expects the economy will get better and Intel will refresh its line-up across the board in areas such as server chips. He said the company expects to compete well against rivals using the ARM chip architecture by coming up with chips that are higher performance, lower power, and lower cost.

In 2011, Otellini said Intel will launch Atom chips that will run in smartphones and tablets, running Windows, Meego, and Android software. Seven tablets have been announced so far. That’s a small number, considering there were likely some 100 tablets announced at CES.

He said that Atom has been selected in more than 1,700 designs for embedded gadgets, such as smart TVs or alarm clocks. Half of the embedded designs are coming from China and are applicable to the smartphone, tablet, and other gadget markets. Otellini said netbook sales grew 20 percent to 37 million units in 2011.

Intel has 82,500 employees, up 800 people during the quarter.

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