Amid Slower PC Sales, Chip Makers Intel and AMD Report Earnings
Doug Freedman, an analyst who covers the chip sector for Gleacher & Co. in San Francisco, trimmed his estimates on both Intel and on its smaller rival Advanced Micro Devices amid a weakened PC market that is running well behind the typical seasonal patterns. Last week, market researcher Gartner reported that worldwide PC shipments grew less than three percent over the year-ago period, as consumers remain focused on tablets and smartphones and hold off on upgrading their desktops and notebooks.
At a high level, that’s not good news for Intel and AMD, both of which have yet to penetrate the tablet market in any meaningful way. And both are grappling with the impending entrance of competing chips — based on designs from ARM, from vendors like Nvidia and Qualcomm — burrowing their way into new consumer notebooks.
In a July 15 note to clients, Freedman cut his estimates on both Intel and AMD for the quarter ending in June and the quarter ending in September. He expects Intel to report sales of $12.7 billion, which is about $100 million below the street consensus of $12.8 billion. He also expects Intel to report per-share earnings of 53 cents, which would amount to a two-cent improvement over the year-ago quarter.
The quarter being reported today isn’t the story, however: It’s September. Typically it’s a seasonally strong quarter, as college students head back to school with new notebooks under their arms. This year Freedman thinks PC sales will lag behind historical patterns. He trimmed his September quarter revenue forecast to $13.16 billion, down from $13.43 billion — or $300 million below the street view — and knocked it down by two cents to 59 cents, a penny above the street.
Intel has, in recent quarters, taken a fairly aggressive stance on the state of the PC market, and has criticized analysts for fanning investor fears. “Management should offer more subdued PC unit growth expectations thereby alleviating investor fear that Intel is setting its bar too high,” Freedman wrote. One other thing Intel has in its favor is that the average selling price of chips is edging upward, which should give it a slight hedge against the weaker market. This should help keep gross margins — a key metric for Intel — in the higher end of the 59 to 63 percent range the company said to expect. He also says that Intel could deliver a surprise with better-than-expected results from other parts of its operations, namely its flash memory unit, which makes solid-state hard drives.
For AMD, which reports its results tomorrow, the picture is a mixed bag. The search for a new CEO is now in its sixth month, with no sign of being resolved anytime soon. Freedman doesn’t expect a CEO to be named today nor in the near term. Finding an external candidate is proving harder than expected. (Note to Freedman: You don’t say.) Pressure on its share price, thanks to short-sellers, has created a buying opportunity in the near term.
Even so, Freedman trimmed his estimates for AMD’s June and September quarters. He expects AMD to report sales of $1.55 billion, down from $1.6 billion previously, which would amount to a four percent decline in year-on-year sales. He also shaved a penny off his EPS estimate to nine cents from 10. For September, he expects AMD to report sales of $1.63 billion, down from $1.7 billion before, and cut his EPS estimate to 16 cents from 20.
I’ll be back later today to cover Intel earnings live. See you then.