What Does Intel’s Guidance Mean for Hewlett-Packard and AMD?

Does Intel's raised revenue and gross margin guidance guarantee that AMD and HP are a buy?

Jun 13, 2014 at 11:05AM

Intel (NASDAQ:INTC) shares were up more than 5% in after-hours trading on Thursday following increased guidance. The chipmaker said something we haven't heard in a long time -- that PCs are the cause for its pleasant guidance surprise. With countless highly connected companies involved in the PC space, does Intel's guidance mean that Advanced Micro Devices (NASDAQ:AMD) and Hewlett-Packard (NYSE:HPQ) are now must buys?

What did Intel say?
Intel shares have been on a roll during the last three months, rising 13%. Much of this performance was in connection to its April 15 quarterly report, when Intel issued second-quarter revenue and gross-margin guidance above expectations, causing 11 different analysts to raise their price targets on the stock.

Originally, Intel was expecting second-quarter revenue of $13 billion but now anticipates $13.7 billion. The company specifically said that stronger-than-expected demand for personal computers used by businesses was driving this unexpected performance. Intel boosted its gross-margin guidance to 64% from 63%, but it did say that its corporate tax rate would be higher than expected. The reason is that PCs carry higher margins for the company, which is a rather bullish sign if you're an Intel long.

Given these improvements and the fact that Intel trades at just 15 times earnings, it's no wonder that shares are trading higher, and will likely continue to do so.

Is AMD gaining ground in PCs?
Also trading higher in response to Intel's guidance is peer Advanced Micro Devices, or AMD, and computer manufacturer Hewlett-Packard. However, a question still remains as whether AMD's 2.3% and HP's 1.1% after-hours response is warranted.

AMD also makes chips for severs, gaming consoles, PCs, etc., with annual revenue of $5.6 billion. During AMD's last quarter it grew revenue 28.4%, year over year, due to its presence in both the PlayStation 4 and Xbox One. Those two consoles had sold 12 million units combined, as of April, since their late-2013 launch.

However, AMD's PC and server revenue fell 12%, year over year, which was far worse than the 4.4% decline in PC shipments that IDC estimated for the first quarter. While discounting played a role in AMD's PC revenue decline, the disconnect from the total market decline shows that AMD lost market share, likely to Intel.

This is an important point to ponder. Just because Intel saw a boost in PC demand doesn't mean the same is true for AMD. Over the last few years, AMD has consistently lost market share in PCs, which is why half its valuation has disappeared since 2011. Therefore, buying AMD solely on the guidance of Intel might not be such a good idea.

A good sign for HP
Hewlett-Packard might be a different story than AMD. If we look back at HP's fiscal second quarter, the company's total revenue dropped 1% to $27.3 billion. However, its PC sales increased 7% to $8.1 billion.

With PCs accounting for nearly 30% of HP's total business, it's clear that the segment is very important to the valuation of the company and its overall fundamental performance. In fact, it was PC strength that offset significant weakness in printing and its enterprise services businesses. But the most meaningful metric might be that consumer PC sales were actually lower by 2%, while the commercial segment increased 12%. HP's performance is very much in line with Intel, perhaps even better, meaning Intel's guidance could be a direct reflection of what we'll see from HP.

Foolish thoughts
On Friday, several stocks reacted to Intel's guidance. Before buying, make sure you consider the degree of impact that Intel's performance will have on the noted company. AMD and HP are two different examples, with the latter likely gaining a tremendous amount of business from what Intel is seeing in the market.

Until we know for certain, and HP announces earnings or updates its guidance, Intel's performance is the only thing we can measure, and based on its valuation, there still looks to be significant upside ahead.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Brian Nichols has no position in any stocks mentioned. 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.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

Something big just happened

I don't know about you, but I always pay attention when one of the best growth investors in the world gives me a stock tip. Motley Fool co-founder David Gardner (whose growth-stock newsletter was rated #1 in the world by The Wall Street Journal)* and his brother, Motley Fool CEO Tom Gardner, just revealed two brand new stock recommendations moments ago. Together, they've tripled the stock market's return over 12+ years. And while timing isn't everything, the history of Tom and David's stock picks shows that it pays to get in early on their ideas.

Click here to be among the first people to hear about David and Tom's newest stock recommendations.

*"Look Who's on Top Now" appeared in The Wall Street Journal which references Hulbert's rankings of the best performing stock picking newsletters over a 5-year period from 2008-2013.

Compare Brokers