What to Expect When Intel Reports Earnings

Chip-giant Intel (NASDAQ: INTC  ) is set to report its fourth-quarter earnings on Thursday, Jan. 16, closing out a challenging year of transition for the company. Intel faces a continually declining PC market, a mobile market which is proving difficult to break into, and a server market which, while growing quickly, is under threat from ARM-based competition, including new ARM-convert Advanced Micro Devices (NYSE: AMD  ) . Here's what to expect from Intel's earnings report.

What analysts are expecting
Analysts are not expecting much from Intel. The average revenue estimate for the quarter is $13.7 billion, up 1.8% from the same period last year. Full-year revenue is expected to decline by 1.4% to $52.6 billion, the result of a rapid decline of the PC market in favor of mobile form factors. Analysts expect earnings per share to rise by about 8% for the quarter but decline by nearly 11% for the full year.

The average analyst target price for Intel is $24.50 per share, slightly lower than the current market price. Shares of Intel have risen about 25% from the 52-week low.

Three stories playing out for Intel
The largest part of Intel's business is the PC group, responsible for processors that power traditional desktop and laptop computers. Intel expects total revenue for this group to fall by 5% in 2013 to $32.7 billion as the market for PCs continues to contract.

Even with a declining PC market, Intel has managed exceptional margins. The company expects a PC operating margin of roughly 35%, with lower costs counteracting the declining revenue. A majority of Intel's profit comes from PCs, so keeping margins high is extremely important.

Intel's PC group could see a short-term boost thanks to Microsoft ending support for Windows XP this coming April. Enterprise customers switching to Windows 7 or Windows 8 are likely buying new PCs as well, and this could give Intel's PC group temporarily higher sales. If Intel's PC group reports stronger-than-expected sales this quarter, this short-term phenomenon could be the culprit.

Intel's server business is booming as companies like Google build out massive data centers, and Intel expects to grow the server business by about 15% annually in the long term. Intel should report strong server revenue growth this quarter, with a dominant market share and little competition in the space driving results.

Later this year, competitor AMD will launch a line of ARM-based low-power server processors, directly competing with Intel's low-end Atom server processors. It's also possible that companies like Qualcomm, currently a leader in ARM-based mobile processors, could try to break into the server market. This represents a real threat to Intel's low-end server business, although the low-power nature of ARM-based chips will keep the high-end server market out of reach.

This quarter's results may give a glimpse into how well Windows 8 tablets and convertibles are selling, with Intel's Bay Trail processors powering the devices. A handful of attractively priced Windows devices from Lenovo, Dell, and HP went on sale toward the end of last year, and Microsoft had stated that its goal was to have 16 million Windows tablets sold during the holiday season.

This year will be the real test for Intel, though, with the company planning to quadruple sales of its tablet chips. Intel's Atom can run both Windows and Android, with 64-bit support coming within the next few months, and a slew of new devices have already been announced at CES. This includes a device from Asus which can switch between Windows and Android within a few seconds.

Is it time to buy Intel?
It seems that Intel has finally reached a point in its mobile business where it's competitive against the ARM-based competition, and if the company's prediction of a stabilizing PC market is correct, then Intel could return to earnings growth sooner rather than later. While this year will be a tough one in terms of profit, with heavy investments being made to spur adoption of its tablet chips, the long-term picture for Intel looks solid.

Competitor AMD, on the other hand, is having all sorts of trouble. While analysts expect AMD to swing to a small profit when it reports earnings later this month, the company's lack of focus and second-place status in every market will make it difficult to become consistently profitable. Its upcoming ARM-based servers may be its best hope in the server market, but they're far from a sure thing.

The bottom line
The specific results of this quarter are less important than the trends playing out for Intel. Its mobile business is finally taking off, with 2014 set to be a big, albeit still unprofitable, year. The PC business, while still shrinking, remains incredibly profitable, and the server business is growing at double-digit rates. The line between PC and mobile devices is blurring, and Intel aims to put its chips into anything and everything.

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  • Report this Comment On January 09, 2014, at 2:54 PM, bluesky64 wrote:

    Timothy,

    Not sure of about your facts AMD product are sold out on many fronts. Game consoles all time record sales pace powered by AMD and the bitcoin market is heating up with AMD parts sold out. What about the aapl Mac pro sold out powered by AMD. So I did you some math. From big losses to big profits updates of sales figures and estimates for AMD 2014 est $ .42

    Smart investors have done the math from Xbox and Play station Sales figure posted Here the Bottom line $ .42 per share in 2014 TOTAL: 2014 sales $ 8.35 BILLION NET profits $1.2 BILLION

    TOTALS of ALL of AMD's 4 MAIN current BUSINESS AREAS for 2014 to 2016

    1) CONSOLES: 2014 sales $3 BILLION NET profits $600 million

    2015 sales $5.4 BILLION NET profits $1.08 Billion

    2016 sales $5.4 BILLION NET profits $1.08 Billion

    2) DISCRETE GPUs

    2014 sales $2 BILLION NET profits $400 million

    2015 sales $2 BILLION NET profits $400 million

    2016 sales $ 2 BILLION NET profits $400 million

    3) SERVER division

    2014 sales $850 MILLION NET profits $200 million

    2015 sales $ 1.5 BILLION NET profits $500 million

    2016 sales $2.5 BILLION NET profits $800 million

    4) PC Divison 2014 sales $2.5 Billion NET profits ZERO

    2015 sales $2.25 Billion NET profits ZERO

    2016 sales $2 BILLION NET profits ZERO

    TOTAL: 2014 sales $ 8.35 BILLION NET profits $1.2 BILLION

    2015 sales $ 11.15 BILLION NET profits $ 2 BILLION

    2016 sales $ 11.9 BILLION NET profits $ 2.3 BILLION

    Price target stands

    AMD Jan 19 2014 $ 4.47, Earning call Jan 22 2014 $ 4.75. Feb 18 2014 $ 5.25, Dec 31 2014 $ 10.75 ( 300% gainer for 2014 )

    AMD will be strong over the next 3 years; will close 2014 at $ 10.75 share, will close 2015 at $20.00 /sh

  • Report this Comment On January 09, 2014, at 10:12 PM, longjon123 wrote:

    Your opinion regarding AMD, near the end of the article, is way off base. CEO Rory Read and his management team have executed an incredible turnaround that brought AMD back from the brink of bankruptcy, returning the company to profitability.

    Even if the company is number two vs Intel and Nvidia, the company's IP portfolio is proving AMD can do much more with less. Products from AMD are causing Intel and Nvidia to sacrifice profit margins, just to stay competitive. AMD single-handedly caused Nvidia to drastically slash prices on it's high end graphics cards. Intel had to resort to steep discounts to turn over inventory. AMD's SeaMicro division won it's largest deal ever with Verizon. I guarantee you IT professionals everywhere took notice. It just so happens, AMD cannot/will not disclose details of other wins due to confidentiality agreements.

    Additionally, AMD is utilizing its novel graphics/processor mix to diversify into new sectors, such as medical equipment, casino gaming, and industrial equipment. Similar to Gilette with its secret Mach 3 development, AMD is cooking up some incredible products that will change the face of its respective industry.

    The real lackluster part of AMD are mostly how it comes across. For example, delayed product milestones, misleading Battlefield 4 rebates, a crappy reference cooler on its flagship graphics card. Given AMD's latest successes and future heading, I think it's only a matter of time before these rough edges are polished out.

  • Report this Comment On January 10, 2014, at 1:35 AM, ruskmasih wrote:

    I thinkthat this article is the most honest and sincere article describing thefuture of AMD and the incrredible work of its new presdient.

    There are very few honest analysts in this field. You eem to be one of them, who knows the good points and the bad points. Stay honest, it is the best trade a person can acquire.

  • Report this Comment On January 10, 2014, at 10:45 AM, kjurden wrote:

    @Timothy Green...I thought this article was about INTC??? At the end of your article you mention AMD and take the opportunity to sling some FUD at them...I question that!!! It tells me that the INTC bulls are genuinely afraid of AMD's new product line.

    On the one hand you say that it's going to be a tough year in terms of profit for INTC, but that their long term future looks solid....then you say that while AMD is probably going to return a profit, their future is anything but certain...On what do you base that opinion? The past? HUMM...I think investors should invest in the company that is going to show a profit!

    AMD is UNDERVALUED and has the greatest opportunity to be a profitable investment.

    AMD is a BUY

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