Intel Earnings: Turning Around Or Turning Down?
Chipmaker Intel will report its quarterly earnings today after the end of trading, and analysts aren’t quite sure what to make of its situation. Some are bullish and optimistic, others less so.
For openers, the first quarter of the year is always the one that’s seasonally slower, as consumer PC sales slow down. And they are, as we saw in the latest estimates from Gartner and IDC last week. Of the $43.6 billion in sales Intel reported in 2010, nearly $25 billion or 57 percent of sales was derived from the sale of microprocessors into PCs. Add in another $6 billion and change for sales of chipsets and motherboards and Intel’s exposure to PCs jumps to 72 percent. By comparison, its Data Center segment, which sells chips used in servers, accounts for $8.7 billion or less than 20 percent of sales. If the PC market is slowing, then it’s hard for Intel not to slow down. However, its technology, its market strength versus rival Advanced Micro Devices, and its best-in-the world manufacturing efficiency allows it to roll with whatever punches the marketplace throws. Plus, Intel does a lot of business with Apple, which continues to boom.
For today’s report the focus will be less on Intel’s results–unless there’s a surprise–than on what Intel says about its guidance for the second quarter. The consensus view of analysts calls for Intel to report Q1 sales of $11.6 billion, which would be a year-on-year increase of 12.6 percent, and 46 cents in per-share profits versus 38 cents a year ago. The consensus view on Q2 calls for $11.87 billion in sales and a profit of 45 cents.
Here is where the analysts start parting company with each other. Hans Mosesmann of Raymond James passes for an Intel bull, seeing Q2 sales at $12 billion and profits at 49 cents. He argues that after accounting for Intel’s acquisitions of McAfee and the wireless chip unit of Infineon, if Intel issues guidance that is in line with seasonal exceptions (Q2 is usually a slow quarter for consumer PC sales as well), that would be a sign that most everything is on track.
There are other optimists out there, some more cautious than others. Take last week’s note from Doug Freedman at Gleacher and Co. He reminded clients that Intel had to fix a manufacturing glitch with its Sandy Bridge chip, one that caused some PC shipment schedules to slip. Though Intel made short work of the problem, Q1 ended “weaker than expected,” he says; he forecasts microprocessor unit sales to fall by 8 percent from Q4, which is in line with seasonal patterns. He expects Intel to report sales of $11.7 billion and a per share profit of 48 cents, but has a more positive outlook on Q2, with sales at $12.2 billion and profits at 49 cents.
Then there are the pessimists. Michael McConnell at Pacific Crest Securities says the consensus numbers are too high, and trimmed his own expectations. He’s calling for Intel to miss, with sales at $11.6 billion. Between the Sandy Bridge problem, the earthquake in Japan, and the acquisitions, there are “too many moving parts,” he says, for Intel to hit its numbers, let alone beat them. Despite relatively strong sales of chips into notebooks and a slight rise in the average price that PC makers pay for those chips, McConnell writes that Intel’s implied guidance for a decline of about 7 percent in chip sales is “likely to prove optimistic.”
Moreover, he sees Q2 estimates at too high as well. First of all, the quarter is at 13 weeks, one week shorter than Q1. Second, the ramp-up of PC makers turning out machines with the Sandy Bridge chip isn’t enough to offset other factors. He expects Intel sales in Q2 to hit $11.7 billion. Overall, he expects Intel to grow its core PC business by only 6 percent this year, well below Intel’s projection. We’ll see how it all shakes out later today. Check back this afternoon. I’ll be covering Intel’s results and the conference call.