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The Troubled PC Market Is Not Quite Dead Yet, Intel Corp. Confirms

By Anders Bylund – Sep 16, 2016 at 4:50PM

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The chip giant boosted its revenue and margin guidance mid-quarter, encouraged by strong PC system trends.

Image source: Getty Images.

Intel (INTC -1.41%) shares were exploring brand-new multiyear highs on Friday thanks to boosted third-quarter guidance. The PC systems industry at large is refilling empty component warehouses, and system demand appears to be on the rise.

Intel doesn't provide mid-quarter guidance updates often, but these releases tend to move markets when they do appear. On an otherwise gloomy market day, Intel shares rose as much as 4.7% in the morning session. Intel shareholders like yours truly can now look back at market-beating returns of 25% over the last year, plus that comfortable 2.3% dividend yield.

The news

Intel's original third-quarter sales guidance pointed to $14.9 billion, give or take $500 million. The new outlook is roughly $15.6 billion, with a $300 million margin of error on either side. The very top of the old view barely eclipsed the bottom end of the updated range, and the midpoint rose 4.7% higher.

Elsewhere, gross margin was boosted by 2 percentage points. Operating expenses will come in $100 million above existing expectations, and the effective income tax rate moved from 21% to 22%.

Doing the math on Intel's detailed guidance, the bottom-line GAAP midpoint moved from $0.60 to $0.68 per diluted share. On an adjusted basis, earnings guidance rose from $0.66 to $0.72 per diluted share. Analysts have been toeing that non-GAAP guidance line, so the guidance update exceeded Wall Street's current expectations.

Market impact

Intel's rosy outlook spilled over into other PC component makers. Memory chip specialist Micron Technology (MU -1.46%) gained 3.7% at most and Intel's archrival Advanced Micro Devices (AMD -3.23%) surged as much as 4.1% higher.

In short, investors and market makers took a deep drink of Intel's positive PC market signs. The reaction was very specific, and did not translate into enterprise computing. For example, the enterprise-oriented Hewlett-Packard Enterprise (HPE -0.77%) saw share gains stopping at just 0.6% while consumer-oriented sister company HP (HPQ -0.74%) raced as much as 3.4% higher.

Mind you, the tea leaves were already pointing in this direction. Just three weeks ago, HP noted that the PC market was improving -- and slightly faster than management had expected. Market tracker IDC still saw a decline in global PC sales in the second quarter, but the drop was only half as large as expected.

Regardless, confirmation of these positive tidbits from Intel itself was a welcome relief. We'll know much more in a month or so, when Intel and many other PC component makers are scheduled to report full results for the third calendar quarter.

Anders Bylund owns shares of Intel and Micron Technology. The Motley Fool recommends Intel.

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.

Stocks Mentioned

Intel Stock Quote
$29.41 (-1.41%) $0.42
Hp Stock Quote
$29.64 (-0.74%) $0.22
Micron Technology Stock Quote
Micron Technology
$54.68 (-1.46%) $0.81
Advanced Micro Devices Stock Quote
Advanced Micro Devices
$74.98 (-3.23%) $-2.50
Hewlett Packard Enterprise Co Stock Quote
Hewlett Packard Enterprise Co
$16.69 (-0.77%) $0.13

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