Shares of Intel (NASDAQ:INTC) rallied to the tune of 4% in the Jan. 14 session following a few upgrades. The long and the short of it is that Wall Street seems genuinely excited about Intel's new management team and the reorganization following the management transition. More importantly, however, there appears to be some genuine enthusiasm over the fact that the PC market may not be as "dead" as expected. Should investors expect much more of a move up, or are shares due for a breather?

It's all about earnings and guidance
On Jan. 16, Intel will report its Q4 2013 results and issue its guidance for Q1 2014. Interestingly enough, Q4 seems to be well-accepted by most as one in which Intel will meet/exceed expectations based on the beginnings of stabilization in the PC demand environment. A "beat" for the current quarter at this point is expected, meaning that investors shouldn't get too worked up about one when the results are announced.

What's more important is guidance. It is important to note that Q1 is seasonally down, so the key metric will be how Q1 looks on a year-over-year compare against Q1 2013. The good news is that on this year-over-year compare, both gross margin and revenue should be up on the following drivers:

  • Intel's capacity utilization should be significantly better in Q1 2014 than it was in Q1 2013 (during which margins hit a multi-year low of around 56%), meaning that gross margins should be more in the 60% range-Intel's long-term gross margin range midpoint
  • All of Intel's key data-center segments are exhibiting secular growth (cloud, storage, HPC, etc.), so the company's data-center group (which is nearly 50% operating margin) should further help the top and bottom lines
  • PC sales have a shot at being up on a year-over-year basis, particularly as Intel rolls out its low-cost Bay Trail-M to take back low-end PC share from competitor Advanced Micro Devices (NASDAQ:AMD)

Now, this "good news" could be offset somewhat by the following,

  • Intel will likely begin the full-throttle ramp of its Bay Trail for Android tablets. Since these have some pretty hefty "rebates" associated with them, they will serve as a headwind to gross margins. Since the full-year impact of this move will be a 1.5% ding to gross margins, and since Intel will roll out BoM reduced parts throughout the year, the hit is likely to be at its peak in Q1 and Q2 before leveling off
  • There is risk that Intel's enterprise segment of its data-center business may not grow as quickly on a year-over-year basis as management expected at its analyst day – this will be a key sub-segment to get more information about on the call

Watch AMD, too
Since AMD is the only other chip player with similar levels of exposure to the PC market as Intel, this name will also trade in sympathy with Intel. However, it's important to make sure that if Intel reports solid results that these are more a result of secular improvements in the PC space rather than share gains/cost structure optimizations on Intel's part. Listen very carefully to the comments on the call, particularly if you plan to play AMD on the back of the Intel results call. If Intel claims massive share gain with Bay Trail-M, then good news for Intel likely won't translate into good news (in the PC space, anyway) for AMD.

Foolish bottom line
While 2012 was unkind to Intel and its shareholders, and while Intel underperformed in 2013, it's going to be pretty interesting to see how well the company does in 2014. If PC sales stabilize and by year's end show a return to growth, then all bets are off and Intel goes much higher – regardless of its position in the mobile space. If PCs continue to decline, then the focus will inevitably turn back to mobile – a story that doesn't get really interesting for Intel until 2015.

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Ashraf Eassa owns shares of Intel. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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