Chip giant Intel (NASDAQ:INTC) is scheduled Thursday to report earnings results for the fourth quarter of 2014 and to issue guidance for the first quarter of 2015. Intel has already given full-year 2015 guidance, so the quarterly outlook will show whether the company looks to start the year in line with that guidance -- or if it's doing better or worse.
With that in mind, let's review key details investors should know before Intel reports.
What Intel guided for 2015, and what analysts expect
At its investor meeting in November, Intel guided to mid-single-digit percentage revenue growth for 2015, gross profit margin of 62% (+/- 2%), operating expenses of $20 billion (+/- $400 million), and capital expenditures of $10.5 billion (+/- $500 million).
Intel typically collects lower revenue in the first half of a given year than it does in the second half. Intel has also signaled that the cost structure of its new 14-nanometer Broadwell processors should fall significantly in the second half of 2015, so that likely means gross profit margin below the 62% forecast in the first half of 2015, with that margin rising in the latter part of the year.
Turning to analyst expectations (which I believe investors use as a benchmark for a company's performance), Intel is projected to deliver $58.19 billion in revenue in 2015, about 4.1% year-over-year growth from their expectations for 2014.
For the soon-to-be-reported fourth quarter, analysts expect $14.7 billion in revenue, which is exactly the midpoint of Intel's guidance. For the following quarter, analysts project revenue guidance of $13.77 billion, representing 7.90% year-over-year growth.
Yahoo! Finance has not yet listed analyst estimates for earnings, but based on Intel's earnings guidance, Q4 operating income at the midpoint should come in at $4.508 billion. I prefer to use operating income rather than earnings per share or net income, because those two can be influenced by tax rate or other factors unrelated to the health of the underlying business.
OK, those are the numbers, what about the fundamentals
Discussing the company's key businesses at its investor meeting last year, Intel said its data center group is expected to grow revenue in excess of 15% (with profits better than that) in 2015, while the PC client group is expected to see revenue "slightly down." Intel also expects mobile losses to shrink by $800 million.
Intel intends to merge its mobile group with its PC client group, so I'll be looking for revenue for the combined group to be up year over year (flat PC group with growing mobile) and for operating profit to show signs of improvement (again, flattish to slightly down PC, but with a solid improvement in the mobile part).
I'm comfortable going into earnings
As a long-term Intel investor, I'm pretty comfortable holding this stock going into the earnings report. One note of caution: While I think there is a good chance Intel will meet or even exceed estimates for the current quarter, and while the guidance might be solid, investors seem much more positive on the stock today than they were a year ago.
I don't think the stock will make a huge move in either direction in the near term, barring an enormous beat or miss in either the fourth-quarter results or the arguably more important first-quarter guidance.
Prior to its huge run-up, Intel seemed like a great value play, and much of that value was unlocked for investors who got in early enough. Now, Intel seems like a solid growth at a reasonable price, or GARP, stock. It trades at a reasonable valuation, and if management continues to execute over the next few years, Intel's financials -- and its stock price -- should continue upward, if at a more modest pace than we saw in 2014.