Intel Results Give Strongest Look Yet at the State of PC Sales
Chipmaker Intel reports its quarterly earnings after the close of markets in New York today, and after weeks of bad news about PC sales and other tech indicators suggesting rough quarters for hardware giants like Hewlett-Packard and Dell, we’ll get our first look at one of the most-watched bellwethers for the health of the tech economy: Demand for chips.
The earliest indicator so far isn’t a good one: Intel rival Advanced Micro Devices (AMD) warned last week that sales are going to be much lower than previously expected, and cited anemic markets in Europe and China as the reason. Intel often has the muscle to resist these swings in demand more readily than AMD does, but in some measure, the trends can’t help but hit them both.
Enough signs of trouble were there for analyst Mike McConnell of Pacific Crest Securities in Portland, Ore., to lower his estimates on Intel in a note to clients issued July 15. Demand for PC motherboards is down and expected to grow only 5 percent, versus the previous quarter where expectations had been for growth of 10 to 15 percent.
The reason: Demand from PC makers and resellers in China is weakening. That led to a buildup of inventory among motherboard manufacturers, who are now carrying five to six weeks worth of parts in their warehouses, whereas they normally have only a three to four week supply on hand. Inventory buildups are a classic sign of a slowdown in overall chip demand.
McConnell also thinks that in partial response to the inventory buildup, Intel has delayed shipment of a new desktop processor. Fearing a dreaded inventory correction that always slams chip stocks, McConnell trimmed his estimates for Intel’s fiscal year 2012, but not for the quarter Intel is reporting today. He now thinks Intel will finish the year with $2.52 in per-share earnings on sales of $59 billion 2012 EPS versus a prior estimate of $2.64 on $60.2 billion.
For the quarter, he expects Intel to deliver 52 cents a share on $13.6 billion in sales. That’s pretty much in line with the consensus of other Wall Street analysts who expect Intel to report 52 cents on $13.56 billion.
Intel has in recent memory had a tendency to defy the conventional wisdom of the market research houses Gartner and IDC by reporting strong results in markets they don’t track, like Brazil. Now China — long the boomingest of all the booming developing markets — is slowing down. The ripple effect can’t help but sting Intel. The question is: How badly?