Intel (NASDAQ: INTC ) is set to report its second-quarter earnings after market close on July 15, and investors are expecting solid results due to Intel's recent guidance bump. The most important segment, PC processors, appear to be stronger than initially expected, with demand for business PCs leading Intel to expect total revenue for the year to increase. Meanwhile, Intel continues to push its way into the mobile market, and it aims to ship 40 million of its tablet chips during 2014. Here's what investors should be paying attention to when Intel reports earnings.
Dissecting the PC segment
During the first quarter, Intel's revenue from PC chip sales declined by 1%, far slower than the 6% decline that IDC is predicting for 2014. In June, Intel boosted its guidance for the second quarter, increasing total revenue guidance by $700 million, mostly the result of stronger-than-expected demand for business PCs. While IDC's estimates may end up being overly pessimistic, Intel's PC strength suggests that the company is winning market share from rival Advanced Micro Devices (NASDAQ: AMD ) .
During the first quarter, AMD's computing solutions segment, which includes both PC and server chips, declined by 12% year over year. AMD has since reorganized its business units, lumping graphics chips together with PC processors, so it may be difficult to tell during the company's second-quarter report exactly how its PC processor business is doing. AMD's graphics chip business is doing quite a bit better than its PC processor business.
But, based on both IDC's estimates and Intel's guidance, it's safe to say that Intel is continuing to pick up even more PC market share from AMD. That's really the only way to grow in a declining market, and with AMD spreading its limited resources across multiple business segments, it's not surprising that Intel has been able to solidify its PC dominance.
The long-term picture for Intel's PC business isn't as rosy. While PCs aren't going away, the segment won't be a source of long-term growth for Intel. PCs will remain a major source of profit for Intel, and the company's ability to win share from AMD suggests that maintaining its high margins won't be too much of a problem, but real growth will have to come from somewhere else. Investors should look for an updated outlook on the PC market as a whole during Intel's conference call, but expect guidance for the PC segment to be very exciting.
Intel's lofty tablet goal
Last year, Intel set a goal of shipping 40 million tablet chips in 2014. With global tablet sales expected to be around 245 million units this year, if Intel succeeds, it would command about 16% of the market. During the first quarter Intel managed to ship 5 million tablet chips, but management reiterated its goals for the year.
Don't expect much better tablet performance in the second quarter. Tablet and convertible sales will likely be skewed toward the second half due to both the back-to-school shopping season and the holiday shopping season. So, even if Intel only manages to ship about 5 million tablet processors during the second quarter, there isn't much to worry about, yet.
One second-quarter development that could greatly increase Intel's chances of hitting its goal was the announcement of its Core M line of processors. Intel's low-power Atom processors power most Intel-based tablets and convertibles, although some higher-end devices, like Microsoft's Surface Pro, feature Intel's powerful Core processors. There is currently a gap in both performance and price, between under-powered tablets and powerful ultrabooks, and Intel's Core M processor looks to fill that gap.
Core M is a low-power version of Intel's Core processors, and it will be based on the company's upcoming 14nm manufacturing process. This means that Core M can provide more power than Atom chips, while still being power-efficient enough to allow for fan-less tablets and convertibles with long battery lives. Devices powered by Core M processers are expected to be available this holiday season, which provides Intel with an important weapon in its siege of the tablet market. Investors should look for any news on the exact release date of 14nm processors, as a delay could be extremely costly for Intel.
The bottom line
While Intel's raised guidance for the second quarter made investors happy, the long-term outlook for the PC market suggests that it won't be a source of growth for Intel going forward. Mobile devices will be very important for the company, and investors should look for progress on Intel's tablet effort during the company's conference call. Investors have bid up shares of Intel over the past few months, taking the stock to decade highs, but they may be a bit too optimistic. Short-term PC strength is nice, but it doesn't really change the long-term picture.
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