Why Intel's Turnaround Is Set to Continue

Intel's (NASDAQ: INTC  ) turnaround looked likely in May, and the company delivered handsomely when it reported its second-quarter results. Intel called for a rebound in the PC business, stating that the bad times are over. Moreover, Intel's product development is allowing it to increase its lead over rival Advanced Micro Devices, while the end of support for Microsoft's (NASDAQ: MSFT  ) Windows XP is fueling PC prospects.

Intel is benefiting from growth in cloud and data centers, and is also tapping the Internet of Things for growth. The chip giant looks well-positioned in different segments to continue its impressive run in the future.

An impressive quarter sets the tone
Chipzilla delighted shareholders and investors with year-over-year growth of 40% in earnings in the second quarter. Its revenue grew 8% from last year, mainly driven by improved PC sales. The data center business was up 19% over last year, and the Internet of Things segment grew approximately 24% year over year. 

Intel also issued a robust outlook. It now expects revenue in the range of $13.9 billion-$14.9 billion, outpacing analysts' estimates of $14.02 billion at the mid-point. The full-year forecast is also impressive. The company is seeing positive trends such as lower platform unit costs and higher platform volumes, and the trend is expected to continue going forward. 

PC prospects are improving
The company is targeting a broad range of applications and services. From the smallest embedded devices to the most powerful supercomputers, Intel is working to expand its share. This strategy has worked well for it, and Intel now expects better-than-expected trends in the overall PC market, driven by strength in both non-consumer and desktop segments.

According to Intel, there are approximately 600 million PCs that are four years old or older. The company expects this installed base to undergo a refresh cycle, both in the enterprise and in the consumer markets. Moreover, as Microsoft stopped extending support for the Windows XP platform as of April, a PC refresh is in the cards. 

Microsoft is seeing a rise in sales of Windows Pro licenses, which increased 19% year over year in the third quarter. Microsoft attributed this growth to the increasing adoption of business PCs. In addition, Microsoft cited higher attach rates in developed markets, robustness in the enterprise market, and better traction in small and medium-sized businesses as the reason behind Pro's growth. 

Product innovation, enterprise, and tablets
Beyond PCs, Intel is aggressively bolstering its enterprise business. It is working toward the qualification of 7260, its category 6 LTE product, with carrier aggregation. The company is preparing to launch its next-generation Haswell-based Xeon E5 platform, codenamed Grantley. 

Intel expects its first 14-nanometer Broadwell Core M processor-based systems to go on sale this holiday season. This chip platform will be made available on a broader basis to OEMs in the first half of 2015. Moreover, Panasonic recently confirmed that it will be joining the growing list of companies that use Intel's 14-nanometer process technology, which is an endorsement of the platform's strength.

The company is also trying to make the most of tablet growth. According to management, Intel is on track to achieve its target of shipping 40 million units of tablet chips this year. Its tablet prospects should improve with the launch of SoFIA, Intel's first integrated baseband and apps processor for smartphones and tablets, in the fourth quarter. In addition, Intel has announced a strategic relationship with Rockchip, which will expand and accelerate its system-on-a-chip roadmap in the value and entry-level tablet segment.

Additionally, Intel has been able to expand its addressable opportunity with the Bay Trail system-on-a-chip family. This family allows Intel to deliver a smaller and cost-efficient Atom-based core in its Pentium and Celeron brands. With this chip family, the company has expanded its presence in products carrying lower price points, along with new segments such as Chrome-based systems, without compromising on margin.

The bottom line
Intel is on the right track. Better PC prospects, improving sales of its tablet chips, and innovation will lead to improvements in the company's performance. So, even though Intel has appreciated an impressive 32% this year, it still looks like a good investment.

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