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Intel Corporation Earnings: Here's What Really Matters

By Tim Brugger - Jan 13, 2016 at 9:00PM

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The chip king’s Q4 and 2015 annual earnings news is on deck: Here’s what investors should focus on as it shifts away from PC revenue.

Shareholders of Intel (INTC 2.46%) don't need to be reminded about 2015's dismal stock performance. Nor do they want to hear about the early days of 2016, in which Intel shares have dropped another 5% already. But despite the gloom and doom, there's a lot to like about Intel, and even some industry pundits are finally starting to see the light.

It's no secret that CEO Brian Krzanich and team are in the midst of a significant transition away from a reliance on the PC market. The future of Intel, as Krzanich demonstrated at the recently completed consumer electronics show (CES), goes well beyond desktop computing. This brings us to Intel's Q4 and 2015 annual earnings announcement, which is scheduled for Jan. 14 after the close.

Will Intel once again show a decline in its client computing group? Almost certainly, as this is where its PC sales are housed. But for investors, there are several other areas even more important to monitor to determine how Intel will fare  in the coming months and years.

Image courtesy of Intel.

Soaring in the cloud
Last quarter's 7% drop in PC-related revenue, to $8.5 billion, got much of the press, but it was Intel's data-center performance that should have taken center stage. Thanks to a burgeoning cloud market that's expected to grow to well more than $100 billion annually, the need for secure, off-site data centers is exploding. To Intel's credit, it's quickly become the data-center processor supplier of choice, and the unit's performance reflects its leadership position.

Last quarter's $4.1 billion in data-center sales was a 12% jump over the prior year. Just as importantly, it continues to make up a larger piece of Intel's overall revenue pie. The question for investors is whether the unit's stellar growth will continue in Q4. The answer is: almost certainly.

The future is here
In addition to declining PC sales, some investors have bemoaned Intel's lack of a mobile presence. Unlike its primary mobile-chip competitor, Qualcomm (QCOM 3.14%), Intel has made little-to-no headway breaking into the smartphone chip market. Qualcomm, on the other hand, is expected to make a bit of a comeback in 2016, thanks, in part, to its inclusion in Samsung's Galaxy smartphone lineup, along with most every other high-end Android OS phone around.

Intel's mobile ambitions go beyond smartphones. Sure, it would be nice if Intel chips powered the next iteration of iPhones, or stole a bit of Qualcomm's market share, but there's more to mobile than phones. As Krzanich demonstrated at CES, Intel is targeting mobile devices including drones, wearables, and even robots.

Unfortunately, Intel doesn't break out its mobile-specific revenue results, though much of it resides in its Internet of Things (IoT) division, which is another area investors would be wise to monitor this quarter and going forward.

A connected world
As with the cloud, IoT is expected to become a gigantic market in the coming years. Everything from smart homes, cars, and even cities, will soon become interconnected, and Intel intends to be there to reap the rewards. Again last quarter, Intel's IoT group enjoyed double-digit sales growth, climbing 10% year over year, to $581 million. While the division will almost certainly announce additional improvement, it's worth monitoring to determine just how much Intel's IoT efforts are bearing fruit.

Finally, should Intel hit its target of $14.8 billion in revenue, and earnings per share (EPS) of $0.63 in Q4, shareholders should be ecstatic. Why? Because it will mean that Intel is growing despite PC headwinds, which should help negate Wall Street's concerns. However, as I alluded to earlier, some analysts are beginning to recognize Intel isn't about PCs any longer, which explains price targets in the $39-per-share range -- a nice premium compared to current levels.

Can Intel again boost cloud-centric, data-center, and IoT sales, and meet its quarterly revenue target? Those are the questions that matter. If it does, along with its approximately 3% dividend yield, Intel belongs on an investor's short list of must-have growth and income stocks.

Tim Brugger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Qualcomm. The Motley Fool recommends Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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