Intel Corporation Earnings: Will the PC Really Save the Chipmaker?

On Tuesday, Intel (NASDAQ: INTC  ) will release its quarterly report, and shareholders have to be excited about the strong performance in the chip giant's stock lately. Even as long-term investors have bemoaned Intel's strategic lapse in falling behind competitors Qualcomm (NASDAQ: QCOM  ) and NVIDIA (NASDAQ: NVDA  ) in tapping the full power of the mobile revolution, Intel appears to be getting support from an area that most investors had given hope on entirely: the PC realm.

Intel pioneered the semiconductor industry, with its microprocessors forming the foundation of the PC boom of the 1980s and 1990s. More recently, though, the rise of smartphones, tablets, and other mobile devices has forced Intel to make a major strategic shift, and its sluggishness in adapting to the new environment gave Qualcomm, NVIDIA, and other nimbler competitors the opening they needed to chip away at Intel's dominance. Despite a recent bump in PC demand, Intel still has to figure out how to move forward in a viable strategic direction for the long run. 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

Analyst EPS Estimate

$0.52

Change From Year-Ago EPS

33%

Revenue Estimate

$13.69 billion

Change From Year-Ago Revenue

6.8%

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

Are Intel earnings exploding higher?
In recent months, investors have become much more enthusiastic about Intel earnings, boosting second-quarter estimates by $0.09 per share and full-year projections by almost double that amount. The stock has soared in response, gaining 17% just since early April.

Source: Intel.

Intel's first-quarter results showed the general trend the chipmaker had fallen into recently. Revenue fell 1.5% from year-ago levels, sending earnings per share down 5%. Pockets of strength helped Intel's overall results, including gains in its data-center group. But steady weakness in its PC business continued to weigh on Intel's overall results, with PC-Client revenue easing downward by 1%.

The big positive surprise for Intel shareholders came in June, when Intel announced it was raising its revenue guidance for the second quarter and for the full year. In the release, Intel cited strong growth in PC systems for enterprise customers, and that was enough for it to expect 5% higher sales for the second quarter and to call for at least some growth for the full year compared to original guidance for roughly unchanged sales. Many believe that the removal of customer support for the older Windows XP operating system might have spurred business customers to replace aging PCs with newer models, leading to the short-term bump in the division.

But many worry that the PC recovery could be short-lived, and when it comes to the area with the most promising long-term prospects for its growth, Intel has continued to struggle in the mobile arena. During the first quarter, Intel suffered operating losses of more than $925 million in its mobile and communications division, with net revenue plunging more than 60% from the year-ago quarter's levels. Despite Intel's predictions that the company would rebound sharply in the mobile space in 2013, many now expect that Intel won't see marked progress in mobile until next year at the earliest, as the first-mover advantages that Qualcomm has continue to hamper Intel's efforts to establish stronger market share.

In the long run, Intel will rely on new chip offerings in order to move forward. Its new Cherry Trail architecture has the potential to move well past older offerings, with applications both for low-power PCs and tablets. That could help its graphics performance be more comparable to offerings from NVIDIA and Qualcomm, finally closing a competitive gap that has held back Intel.

In the Intel earnings report, watch to see how large the bump in PC demand has been and what the company foresees as its long-term impact. Without ongoing progress in its mobile efforts, Intel's earnings outlook won't necessarily stay rosy for long.

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