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The dividend hike, which sent Intel shares up nearly 2 percent, also reflects a growing trend among technology giants like Cisco Systems Inc (CSCO.O) to give back more cash to shareholders following belt-tightening during the global economic slump.

"(Intel) believes their profitability is sustainable. My feeling is the PC business has been given up for dead for almost six months and there are some clear signs that things are bottoming out and maybe starting to improve," said Arnab Chandra, an analyst at Roth Capital Partners.

Intel's quarterly dividend will increase to 18 cents a share beginning in the first quarter of 2011. The dividend will be paid March 1 to shareholders of record February 7.

The company's shares rose 40 cents, or 1.9 percent, to $21.61 in afternoon trade.

Intel and other microchip companies have wrestled with low demand in a sluggish U.S. economy in recent months.

But in October, Intel Chief Executive Paul Otellini told analysts on a conference call that Intel was seeing greater-than-expected early demand for its highly anticipated "Sandy Bridge" chip, which combines central processing and graphics functions. The company also issued an upbeat forecast for the fourth quarter.

In a statement on Friday, Otellini said Intel's confidence in its business gave it the ability to return more cash to shareholders.

LEANER TECH

A regular dividend is generally regarded as the mark of a mature company that cannot match earlier growth rates or stock gains. Such companies tend to attract more conservative investors and are the antithesis of what many tech companies aspire to in their early years.

But other major players in the technology sector are also returning more money to investors after emerging from the economic slump much leaner and better at generating cash.

Cisco, one of the few remaining major technology companies to resist paying dividends, said in September that it would begin paying them next year, even as demand remains weak in the short term.

"The industry is structurally better positioned from a cash-generating standpoint, and that cash is not generating any interest," said Srini Pajjuri, an analyst at CLSA. "Margins are much better than before."

Broadcom Corp (BRCM.O) began paying a dividend this year and has said it would consider raising it if cash continues to build.

In September, Texas Instruments Inc (TXN.N) and Microsoft Corp (MSFT.O) increased their dividends.