US chip giant Intel on Tuesday reported strong first quarter profits on higher sales revenue, with earnings per share up 13 cents, 30% year-over-year. Meanwhile, Goldman Sachs in a new report says tablet computers such as the iPad, will cannibalize about 35% of the PC market in 2011.

The firm said revenue was $12.9bn, operating income was $4.3bn, net income was $3.3bn, and EPS (earnings per share) was 59 cents.

The company generated approximately $4.0bn in cash from operations, paid cash dividends of $994m, and used $4.0bn to repurchase 189m shares of common stock.

The first quarter “was a very strong quarter and significantly better than we expected,” Stacy J. Smith, Intel’s chief financial officer, said in an interview on Tuesday.

The company gained from sales of chips used in server systems and other hardware for computer rooms, and revenue increased 32% in that business.

However, Intel PC-related sales also increased, 17% for chips used in personal computers, despite reports that tablets such as the Apple iPad are eating into PC sales.

“The first-quarter revenue was an all-time record for Intel fueled by double digit annual revenue growth in every major product segment and across all geographies,” said Paul Otellini, Intel president and CEO. “These outstanding results, combined with our guidance for the second quarter, position us to achieve greater than 20% annual revenue growth.”

Results detail

Also on Tuesday, Goldman Sachs in a research report termed tablet computers such as the iPad "one of the most disruptive forces in computing" in nearly 30 years. Analysts at the investment bank said tablets are eating into the traditional PC market and will be a challenge for the PC industry currently dominated by Microsoft and Intel, in the earnings stakes.

"Significantly, most tablets are not utilizing Intel microprocessors or a Microsoft operating system, and this allows new companies such as Apple and Google to encroach on" those companies, says the report.

Goldman estimates that tablets will cannibalize about 35% of the PC market in 2011 and 33% in 2012. "This should result in a theoretical loss of 21m notebooks in 2011 and 26.5m in 2012," the report says. "But while some tablet units will be replacing computers, the other 65% to 67% will be purchased in addition to PCs and therefore will increase the overall PC market."

Goldman says the Apple iPad will hold a 64% share of the tablet market this year and the analysts estimate that 60.1m tablets will be sold in 2011 - - up from 17.9m in 2010, when the iPad was launched.