Has Anything Really Changed for Intel Corporation?

By now you've likely heard the good news regarding Intel's (NASDAQ: INTC  ) recently announced, upbeat revenue guidance for Q2 of 2014. We'll know whether the positive signs come to fruition when Intel reports its Q2 on July 15. The upwardly revised forecast has been a boon for Intel shareholders, providing the impetus for a new, 52-week high stock price of over $30 a share. Intel's share price was up nearly 7% the day following the revision.

Though Intel shares haven't performed poorly year-to-date -- its share price is up over 15%, counting the recent pop -- you didn't have to look far to find industry pundits lamenting the chip giant's glacier-slow transformation to high-growth markets like mobile. Alas, Intel's improved outlook wasn't because of strides made in supplying chips for tablets, laptops, or smartphones, it was its old mainstay: PCs. A surprise? You bet, and worthy of some all-around good cheer, but does it substantially change anything relating to Intel's future? Or is industry leading Qualcomm (NASDAQ: QCOM  ) still problem No. 1?

Like an old friend
The continual decline in the PC market, Intel's bread-and-butter for decades, is nothing new. As consumers shift from desktop devices to laptops and tablets, manufacturers reliant on PCs like Intel have paid the price. It's no wonder Brian Krzanich's first order of business when he was named Chief Executive Officer was to tell anyone who would listen that Intel needed to shift away from PCs to mobile devices.

The doom-and-gloom surrounding PCs is what made Intel's upwardly revised guidance for this quarter such a pleasant surprise. According to Intel, "stronger than expected demand for business PCs," will result in approximately $13.7 billion in revenue this quarter, up from earlier expectations of about $13 billion. That's a significant change, and it's easy to see why investors celebrated.

Strong business PC sales should also translate to overall revenue growth for 2014, Intel said, and gross margins should finish up near the high end of its earlier forecasted 61% range. Again, positive news at a time when Intel could use a little. But there's another perspective, too. Increased revenue guidance based on better-than-expected PC sales instead of improved mobile chip sales? That sounds suspiciously close to the old Intel.

Great, but so what?
Growth in business PC sales, as nice as it is for Intel shareholders in the near-term, doesn't mean much for its future. While PC sales may prove to be a bit stronger than some thought, it will always be an industry with little, to no, overall growth potential. Higher than expected sales, doesn't mean higher than last quarter, or last year, certainly as the overall PC market is concerned. This year's Q1 marked the eight straight decline in PC sales. Bottoming out, maybe, but that's about it.

So, that brings us to Intel's mobile efforts, something Krzanich called "critical" to Intel's long-term success. Granted, chip manufacturers, even behemoths like Intel famous for its chip development processes and relatively rapid turnaround, can't arm themselves with mobile chip solutions overnight.

With Krzanich firmly behind Intel's full steam ahead shift to mobile, it's not overly optimistic to expect it to have made some headway by now. Keep in mind, Intel is relatively new to the mobile game, but not brand new. Sure, it's a long road ahead to catch Qualcomm, which owned a whopping 64% of the mobile processor market in 2013. And investors should not expect Intel to make huge inroads on Qualcomm's turf, but chipping away at some of that 64% isn't too much to ask. But it's not happening. In Q1 of this year, Intel mobile chip sales dropped 61%.

Final Foolish thoughts
Not all is lost for Intel, by any stretch. Intel's data center group continues to show steady, quarterly revenue improvement, jumping 11% year-over-year last quarter. With so much upside in the cloud computing and data hosting markets, Intel's data center division could prove to be an on-going bright spot. And Intel isn't without smartphone and tablet customers of its own, despite Qualcomm's commanding market position.

But when push comes to shove, Intel must begin gaining market share in mobile. A stabilizing, if not spectacular, PC market is well and good, and Intel is clearly poised to continue dominating. But for investors, the future is about growth, not maintaining the status quo. Business PC sales are slightly better than expected. Great, now Intel needs to get back to focusing on the task at hand.

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!

Read/Post Comments (1) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 16, 2014, at 4:18 PM, guest1 wrote:

    As the PC transforms into an ultra light full featured machine such as the 12.5" reference design that ASUS looks to be producing the need to carry a mobile tablet such as an iPad as well as a laptop will cease to exist. Since it is a core processor and not a mobile one Intel will once again dominate as mobile and desktop converge. Why bother with a compromised device when you can have a tablet with a powerful full OS and long battery life? Not to mention the fabbing challenges that lie ahead for TSM and Sammie. The days of QCOM et al are numbered.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2995994, ~/Articles/ArticleHandler.aspx, 9/1/2015 4:22:46 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Tim Brugger

Tim has been writing professionally for several years after spending 18 years (Whew! Was it that long?)in both the retail and institutional side of the financial services industry. Tim resides in Portland, Oregon with his three children and the family dog.

Today's Market

updated 7 hours ago Sponsored by:
DOW 16,528.03 -114.98 -0.69%
S&P 500 1,972.18 -16.69 -0.84%
NASD 4,776.51 -51.82 -1.07%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/31/2015 4:00 PM
INTC $28.54 Up +0.12 +0.42%
Intel CAPS Rating: ****
QCOM $56.58 Down -0.39 -0.68%
Qualcomm CAPS Rating: ****