Chipmaker Intel will report its quarterly results after the markets close for trading in New York. And while much of the attention surrounding its announcement will focus on the health of Intel’s largest end market — personal computers — there are many other threads in the Intel story that bear watching.
CEO Brian Krzanich used the exposure of the stage at the International Consumer Electronics Show in Las Vegas earlier this month to try and inject some new life into Intel’s image. Having missed the boat on mobile phones, it has gone aggressively after the nascent wearable computing space with its tiny Quark chip and Edison, its concept for an in-ear virtual assistant, hoping to generate some badly needed new buzz.
But concepts for the future don’t add to the bottom line in 2013. And that has been a mixed bag of bad news. First, there’s PC sales. Last week, the market research firms IDC and Gartner confirmed what had been readily apparent for some time: 2013 was the worst year on record for PC sales. It’s not Intel’s only business — it has a healthy command of the market for chips that go into servers, too — but it was 63 percent of revenue in the first nine months of 2013.
Market realities are working against it. In a note to clients yesterday, Vijay Rakesh, analyst at Sterne Agee, worried that too many analysts have concluded that the PC market has stabilized when, in his opinion, it’s only likely to get worse: “We believe a lot of recent Intel upgrades have been based on fourth quarter PC builds being better … but we believe that March quarter PC builds are down 12 percent quarter-on-quarter, a significant decline versus the five percent pickup in Q4 2013,” he wrote.
Rakesh also said that some of the relative stabilization of the PC business in the second half of 2013 had more to do with Windows XP expirations in the corporate sector. That demand could slow down, he argues, after April.
He also noted that Intel seems not to be winning much business in the tablet sector. Samsung is using either its internally produced Exynos chip or Qualcomm’s Snapdragon and not the Intel chips it had used in one model previously. Amazon’s tablets may be using chips from MediaTek, he said.
Rakesh has a neutral stance on Intel shares and a price target of $20. He’s expecting Intel to report Q4 earnings of 52 cents a share. That’s in line with the consensus view of analysts surveyed by Thomson Reuters. The consensus view also calls for revenue of $13.72 billion. For the quarter ending in March, analysts expect Intel to report a per-share profit of 42 cents on sales of $12.8 billion.
Despite the difficulties in the PC business, Intel shares rose more than 25 percent during 2013, and at Wednesday’s closing price of $26.67 the shares were trading fairly close to their 52-week high. Rakesh attributes much of that to Intel’s well-honed ability to carefully manage its costs in a tough environment.
Also there will be questions about Intel’s decision to delay the opening of a massive manufacturing plant in Arizona. Its fab utilization — an important indicator of how busy its factories are — stands at 80 percent, meaning there’s no need to ramp up production on an expensive new manufacturing line now. And there will be the usual questions about capital spending plans, all of which will be treated as tea leaves for the year’s outlook.