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Here's How the 3rd Quarter Should Shape Up for Intel Corp.

By Anders Bylund - Oct 23, 2017 at 1:57PM

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The processor titan will benefit from high interest in its newest server processors, and we're about to learn more about the company's long-term plans in automotive computing.

Semiconductor giant Intel (INTC 3.21%) is gearing up for another quarterly report. The company will publish its third-quarter earnings after the market close on Thursday, October 26. Here's what investors should expect from Intel's business update.

Intel's Q3 guidance

As part of the second-quarter report in July, Intel supplied the following guidance targets for the third quarter.

Metric

Q3 2017 Guidance (midpoint)

Q3 2016 Results

Expected Year-Over-Year Change

Revenue

$15.7 billion

$15.8 billion

(0.6%)

Gross margin

61%

63.3%

(230 basis points)

Operating margin

27.4%

28.5%

(110 basis points)

GAAP earnings per share (diluted)

$0.72

$0.69

4.4%

Data source: Intel.

The revenue target comes with a $500 million margin of error, up or down. Likewise, Intel's management expects the EPS figure to land within $0.05 of the stated midpoint.

Intel logo in the form of a statue by the Noyce building on the company's headquarter campus.

Image source: Intel.

What's new?

Intel closed the $15.3 billion acquisition of Mobileye in early August. The deal should reshape Intel on a fundamental level, adding a new business unit to manage the company's autonomous driving operations. The company had six named operating segments before this event, plus a seventh catch-all division to manage sales and expenses not related to any of the core segments. Here comes name-brand division No. 7.

Mobileye's trailing sales stopped at $408 million before the company joined forces with Intel, which amounts to a rounding error compared to the chip titan's much larger revenue flows. So the deal should not make much of a difference to Intel's sales or earnings at first, though both companies expect bigger benefits in the future. Intel estimates automotive computing to become a $70 billion annual market by the year 2030.

The Mobileye deal signing will, of course, trigger tidal waves of expenses across Intel's income and cash flow statements over the next couple of quarters. There will be cash payments to record, and $15 billion buyouts are typically followed by integration costs, restructuring charges, and cost-cutting synergies between the two merging businesses. Expect a rundown of these changes alongside Intel's forward-looking guidance targets in the third-quarter report.

In other news, market analysts are reporting reasonable stability in the market for PC systems as third-quarter unit sales stopped 3.6% short of the year-ago period's total. Consumer demand has been weak in recent months, but sales of corporate workstations and laptops are holding steady. Enterprise products add up to Intel's second-largest target market today. The data center group, which accounts for Intel's enterprise computing revenue, pulled in 30% of Intel's total sales in the second quarter. Client computing delivered 56% of the company's total sales.

Analyst firm Stifel Nicolaus sees strong demand for Intel's new portfolio of server processors, with system upgrades sparking "the steepest ramp in 10 years for Intel." These chips bring more processing threads to the table, and strong sales of these high-priced processors would widen Intel's profit margins.

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