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What Should You Expect From Intel Corporation's Fourth-Quarter Report?

By Anders Bylund - Jan 12, 2016 at 6:14PM

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There's change in the air for the semiconductor giant. On Thursday, management will have the perfect stage for telling us all about it.

Image source: Intel.

Intel (INTC -2.43%) is about to drop a fourth-quarter report on us. The semiconductor giant will publish that update after the closing bell on Thursday. Intel shares have fallen more than 8% over the past 52 weeks, battered by a difficult PC market and currency headwinds. What should we expect to see in this quarterly update?

The basics
Management's official forecast calls for fourth-quarter revenue of roughly $14.8 billion. That would be a 2% increase from the third quarter and roughly flat compared to the year-ago period.

The company doesn't offer guidance in terms of earnings per share, but gross margin is expected to hold steady at 62%. Operating costs are seen rising 4% compared to the third quarter. The recently closed acquisition of Altera will add about $70 million of one-time costs to this profit and loss sheet.

The Altera buyout closed at the end of December and will have no material impact on fourth-quarter results. Moving forward, Altera should weigh on Intel's GAAP earnings in 2016 but add to the bottom line when you back out acquisition-related charges.

Expect Intel to spend some time updating investors on how the Altera integration is working out, and more detail on the new market opportunities the deal brings to Intel's table.

Why is Altera worth $17 billion to Intel?
This acquisition was not all about the bottom line.

At a recent industry conference, Intel CEO Brian Krzanich said that the young engineers who will invent the next Next Big Thing are all working with ARM (ARMH) chips rather than Intel's x86 architecture:

We've lost touch with the community that was going to be the next people who invent the next great machine that we all love and use.

I have to go back and get those people in touch with Intel, see that there is a technology that there is a capability that they cannot match anywhere else on the planet.

Altera is an important part of that long-term goal. First, the company comes with its own ARM license and will make it easier for Intel to shape that market. Moreover, Altera specialized in programmable chips, something Intel doesn't have much experience with.

In Krzanich's words, "you won't feel that change for five to 10 years," but it's coming. Becoming cool in the eyes of young engineers will pay off, but it's a long-term bet.

So this will be the last earnings report from the Intel you know. Forecasts for the next quarter and fiscal year will be telling, with the full effect from the largest merger in Intel's storied history finally coming to light.

Anders Bylund owns shares of Intel. The Motley Fool recommends Intel. Try any of our Foolish newsletter services free for 30 days.

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