How Intel Earnings Could Beat Out Qualcomm and NVIDIA

Intel (INTC 1.77%) will release its quarterly report on Thursday, and shares have rocketed to new two-year highs in hopes that earnings will start to show accelerating growth. Even though Qualcomm (QCOM -0.20%) and NVIDIA (NVDA 3.71%) have had faster success in taking full advantage of the opportunities in the mobile market, Intel is finally starting to show signs of finding a viable niche. Is it too late for Intel, or can it catch up and eventually surpass its rivals?

Intel still enjoys a huge advantage in the PC market, and even though the decline in PC sales in recent years has been significant, it promises to be a fairly long downward trend. Yet Intel has decided not simply to cede the mobile market to its rivals, instead looking for ways to provide low-power-consumption chips at reasonable price points that can appeal to manufacturers throughout the world. Whether that proves to be a viable strategy against NVIDIA and Qualcomm remains to be seen, but it's an improvement over Intel's lack of action previously. Let's take an early look at what's been happening with Intel over the past quarter and what we're likely to see in its report.

Source: Intel.

Stats on Intel

Source: Yahoo! Finance.

What's next for Intel earnings?
Analysts have had mixed views recently about Intel earnings, raising their full-year 2013 estimate by a penny per share but cutting their view for 2014 by $0.03 per share. The stock, though, has headed higher, rising 18% since early October.

Intel managed to give investors what they wanted to hear in the third quarter, with revenue and earnings both coming in ahead of expectations with a nearly 50% rise in net income. Yet Intel's guidance for the fourth quarter at the time wasn't up to snuff, with revenue expected to come in about 2% shy of where investors had hoped.

Unfortunately, Intel's late arrival to the mobile-device game will cost it in the short run as it works to catch up. The company expects to sell 40 million tablet processor chips in 2014, but to do so it'll have to sacrifice about 1.5 percentage points in its gross margin. Even though its Bay Trail was designed to be a high-end chip offering, Intel also plans to aim the unit for midrange and low-end products. The move should help Intel displace some of Qualcomm's dominance among tablet makers. Still, NVIDIA has powered ahead with partnerships centering on car-based entertainment systems, and Qualcomm is moving ahead with its own initiatives aimed at boosting mobile growth.

One big opportunity for Intel could come from providing its foundries to device makers seeking to produce their own in-house designs. Some believe that Apple (AAPL 0.52%) could become an eventual large user of Intel foundry services, given its hope to produce its own custom-tailored chips to address the specific needs of current and future devices. So far, Apple has seemed to want to avoid committing to Intel in favor of other suppliers, but in the future the two companies might well find such an arrangement mutually beneficial.

In the Intel earnings report, watch to see just how much falling PC sales actually hurt the company. So far, Intel has done well to keep margins up even with PC sales falling, and key moves to end support for older PC operating systems could force owners to update their computers, providing a temporary boost in sales. In addition, a look at how well Intel-based mobile devices sold during the holiday period should give an early indication about how successful the company's strategy could be in the long run in fending off competition from NVIDIA and Qualcomm.

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