ATI Technologies Inc. reported record first-quarter sales that jumped ahead 40 per cent and a five-fold rise in profit Friday amid rebounding demand for desktop personal computers.

The Markham, Ont.-based graphic chip maker also provided a rosy forecast, saying sales in the current quarter will exceed analysts' targets.

ATI's stock, which has been on tear from its February 52-week-low of $5.54, shot up more than 5 per cent in early trading. It lost ground steadily Friday and closed up a slimmer 0.9 per cent or 17 cents at $19.63 on the Toronto Stock Exchange, not far from its year-high of $22.

On the Nasdaq Stock Market, the stock fell 11 cents (U.S.) or 0.73 per cent to $14.59.

ATI earned $47.4-million or 19 cents a share in the three months ended Nov. 30, up from $7.3-million or 3 cents a share a year ago.

First quarter sales soared to $469.7-million from $335.4-million.

Both results beat expectations by a slim margin. The company was expected to have earned 18 cents in the first quarter, according to a poll of 16 analysts by Thomson First Call, on sales of $457.8-million.

"Strong performance in desktop discrete products, based on increasing penetration of the add-in-board and system integrator (SI) channel led the revenue growth," ATI said.

More than 80 per cent of ATI's revenue is derived from the desktop personal computer and laptop market.

Gross margins were 35.9 per cent of revenue, the company said.

"Based on the strength of the company's product line, increased SI channel penetration, and an improving PC market, the company anticipates that its results for the second quarter of fiscal 2004 will be stronger than typical seasonality," ATI said.

The company expects revenue for the second-quarter ending in February will come in between $430-million and $470 million, higher than an average Wall Street estimate of $423.9-million. ATI forecast gross margins will be between 32 per cent and 35 per cent.

TD Securities Inc. analyst Andrew Lee estimated second-quarter per share profit will range from 14 cents and 18 cents, higher than his previous estimate of 14 cents a share.

He believes strong demand for ATI's chips will come at the expense of rival Nvidia Corp. of Santa Clara, Calif.

"We continue to recommend ATI over Nvidia, given its market share momentum (both integrated and discrete desktop and mobile), its meaningful revenue ramp in non-PC related markets (wireless phones and digital TVs), and its strong roadmap of game console design wins," Mr. Lee wrote in a note.

ATI said operating expenses were $106.7-million in the first quarter, up from a year-earlier $79.9-million on expenses linked to its restricted share unit program and the higher Canadian dollar in relation to its U.S. counterpart.

"As has been the norm for the past several quarters, the increase in revenues was primarily due to increased shipments of desktop discrete products," Daniel Kim, an analyst at Paradigm Capital Inc., wrote in a research note released Friday. Consumer products also contribute to the higher sales, he added. The analyst has a "buy" recommendation on ATI stock and a target price of $20.

"ATI forecasts a seasonal dip in revenues for the next quarter. However, due to its continued market share gains, the company believes revenues will be stronger than typical seasonality," Mr. Kim said.