Semiconductor titan Intel (INTC -2.36%) is gearing up for its next earnings report. Results for the fourth quarter of 2019 will drop after the closing bell on Thursday, Jan. 23. Here's what investors should expect from Intel's report.

Intel's Q4 by the numbers

In the guidance section of the third-quarter report, Intel set its fourth-quarter guidance targets above the then-current analyst consensus. Revenues should rise roughly 3% year over year, landing near $19.2 billion. GAAP earnings were aimed at approximately $1.28 per share, 14% above the year-ago reading. Adjusted earnings should decrease by 3%, stopping near $1.24 per share. As usual, analysts have adjusted their projections to line up almost exactly in line with the midpoint of Intel's guidance figures.

Keep in mind that Intel tends to deliver actual results slightly above management's guidance targets. The company hasn't missed one of Wall Street's quarterly earnings targets since the end of 2013, where PC sales were dropping faster than expected. The streak of revenue surprises is somewhat shorter, stopping at a slight top-line miss in the fourth quarter of 2018. Here, the company took a $200 million revenue hit from Apple's (AAPL 0.42%) report of slow iPhone sales.

Color commentary from recent reports in the chip industry

First, let me remind you of Intel CEO Bob Swan's view of the market landscape from three months ago.

"We are growing share in a large and expanding $300 billion market opportunity, fueled by the exponential growth of data, which is reshaping computing," Swan said. "Cloud workloads are diversifying, networks are transforming and more computing performance is moving to the edge. We've been on a multi-year journey to reposition the Company's portfolio to take advantage of this industry catalyst. Today we have the product and technology leadership that uniquely positions us to capitalize on these trends."

Several key players in the semiconductor sector have reported earnings in the lead-up to the first earnings season of calendar year 2020. Each earnings call offered some clues to how the market is shaping up this year.

A businessman with a megaphone addressing a large and tightly packed crowd.

Image source: Getty Images.

A walk down Memory Lane

Memory chip giant Micron Technology (MU 0.97%) offered this rosy overview mid-December:

"In DRAM, there has been a strong recovery in the second half of calendar 2019, and our view of calendar 2019 industry bit demand growth has increased to approximately 20%. This stronger than expected demand has resulted in pockets of shortages for us," said Micron CEO Sanjay Mehrotra. "We are confident that 5G will be positive for both memory and storage content growth, as well as smartphone unit sales, and are encouraged to see the launch of affordable 5G phones with price points as low as $300 that feature a minimum of 6 gigabytes of DRAM. The 5G phones launched to date average 8 gigabytes of DRAM and 200 gigabytes of NAND, significantly higher than the average content in smartphones today."

In other words, Mehrotra sees modern devices requiring more memory than ever before due to the hardware requirements of 5G wireless communications. The same trend also applies to processing power, spread across the data-crunching servers at the hub of every Internet of Things operation and the mobile devices collecting data in the real world.

More 5G excitement

Market-leading chip foundry Taiwan Semiconductor Manufacturing (TSM 0.01%) reported fourth-quarter results earlier this week, including this market review by CEO C.C. Wei:

"We reiterate mid-teens penetration rate for 5G smartphones of the total smartphone market in 2020," Wei said. "We also forecast a faster penetration of 5G smartphones as compared to 4G over the next several years while the silicon content of 5G smartphones will be substantially higher than that of 4G smartphones."

The proliferation of 5G connectivity will drive adjacent businesses such as artificial intelligence, the Internet of Things, and smart monitoring of industrial systems.

"With 5G driving exponentially growth and the amount of big data being generated and continuous improvement in algorithms, a smarter and more intelligent world will require a massive increase in computation power," Wei continued. "We believe 5G is a multi-year megatrend that will enable a world where digital computation is increasingly ubiquitous, which will fuel the growth of all four of our growth platforms (mobile computing, Internet of Things, automotive computing, and high-performance computing) in the next several years."

The upshot: Intel's numbers will be strong

That sounds a lot like a healthy market environment for Intel's data center products. I would be surprised to see anything less than an earnings surprise from Intel's fourth-quarter report, and the company should be able to pin its gains on the rapid adoption of 5G devices, which in turn unlocks a whole new world of related growth ideas.

Intel's share prices have largely tracked the broader market over the last year, posting a 52-week gain of 23%. The stock trades at a deep-discount valuation of 14 times trailing earnings and 13 times forward earnings estimates, well below Intel's average P/E ratios over the last four years. Picking up a few Intel shares before Thursday's report makes a lot of sense in that light.