Chipmaker Intel (NASDAQ:INTC) is expected to report its first quarter financial results after the market close on April 14th. This report will come about a month after Intel lowered its previous revenue guidance by $900 million, citing "weaker than expected demand for business desktop PCs" as well as "lower than expected inventory levels across the PC supply chain."
I am not worried about whether Intel will be able to hit the midpoint of its new revenue guidance -- it is the expectations Intel sets for the remainder of the year that I think investors will care about.
What analysts expect
Analyst consensus sits at $55.71 billion in revenue for the year and $2.14 in earnings per share. These numbers represent 0.3% and 7.35% declines, respectively, from 2014 levels. Intel had previously forecast approximately 5% revenue growth for 2015, and 60 days ago, analysts had expected earnings per share to grow 2.6% to $2.37.
In the March revenue warning, the company said its first quarter revenue shortfall was due to worse-than-expected PC sales. It even made a point to say its data center business was tracking to expectations. This seems to imply that when Intel revises its revenue expectations for the year, it will maintain guidance for all segments aside from PCs.
If that is the case, are expectations low enough?
If we assume that is the case, that would imply the roughly $2.96 billion reduction in the analyst consensus for Intel revenue in 2015 comes completely from its PC group.
To put this into perspective, Intel had previously forecast a "slight decline" in PC chip revenue in 2015 from 2014 levels. If we take that to mean a 3% decline, this would imply that prior analyst consensus expected approximately $33.63 billion in PC sales. The nearly $3 billion reduction from those prior estimates suggest current consensus estimates call for about $30.67 billion in PC-related revenue.
This would mean a PC-related revenue decline of about 11.5% for the year.
Research company IDC recently said that it now expects PC shipments to decline 4.9% during 2015. In prior guidance, Intel said it had expected flat unit shipments, but lower average selling prices would lead to revenue being "down slightly" for the year. If we assume average selling prices for Intel PC chips also decline by about 3%, then that, combined with the unit forecast from IDC, gets us to a 9.2% decline.
That is certainly in the ballpark of what Wall Street is currently modeling in.
What does this mean for investors?
The above analysis suggests to me there is a pretty decent chance analyst consensus is sufficiently conservative -- it seems to take into account both the expected PC unit decline as well as the average selling price declines Intel mentioned.
In other words, I am not too worried that Intel will come out and guide to a PC-related revenue decline that is meaningfully worse than what analysts already seem to be expecting.
The key thing to watch will be what revised guidance for its data center group is. Despite the statement that its data center business "is meeting expectations," this likely refers to performance for the current quarter. We will know soon whether or not Intel will maintain revenue and profit growth guidance for this business for full-year 2015.