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Will Intel Live Up To Investors’ Expectations This Quarter?

April 13, 2014 | About:
ICRAOnline

ICRAOnline

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Semiconductor chip giant Intel (INTC) is about to announce its first-quarter 2014 results on April 15. Last quarter, Intel posted mixed results with the top line beating the Street but bottom line slightly missing the same. However, the results were higher than the year-ago level and the company appreciated higher demand from PC and server customers. Will Intel be able to keep the momentum alive and cheer its investors? Let’s find out.

PC Market Could Remain Favorable
Sales of desktop PCs have been declining since past few years as mobile computing devices like tablets and smartphones hogged all the limelight. Naturally, Intel had a tough time with slowing demand from its PC customers. But during the fourth quarter, Intel noted higher revenue from the sale of desktop PC chips due to improved pricing.

Interestingly, one of Intel’s premium clients PC giant Hewlett-Packard (HPQ) reported a better-than-expected first quarter results mostly because of rebound in its desktop PC sales. Maintaining the momentum in the PC sales is tough amid forecast for lower PC shipment in 2014. But HP’s continuous addition to the PC line-ups clearly reflects the tech giant’s intention to boost sales.

Research firm IDC expects PC shipment to fall by 6% this year. Although disheartening, the forecast shows that the decline is moderating. PC shipment dropped 10% last year. Sensing a mild turnaround in the PC industry, Intel is developing a new chipset namely Broadwell for desktop PCs. PCs featuring this new chip are expected by the middle of this year. This could mean that sales of its existing chips for desktop PCs may fall this quarter as manufacturers would prefer to use the next-generation chip to attract customers.

But the damage may not be that bad, thanks to some recent developments at software giant Microsoft (MSFT). Microsoft reportedly ended its support for Windows XP operating system (OS) on April 8, which could be a serious threat to the end users as no security updates or technical support will be available. This could lead end users to buy PCs featuring Microsoft’s latest Windows 8.1 OS.

Continuous new product offerings at HP, possibility for higher sales of Win 8.1 PCs and a moderated decline expected in the PC industry bodes well for Intel and its PC chip sales could see another round of growth this quarter.

Well Positioned in Data Center Biz
Intel is making continuous progress in its data center business. It offers both server chips as well as solid state drive (SSD) to its data center customers. In the past quarter, revenue from this quarter grew 8% as average selling price improved 7%.

Intel chips are increasingly being used by biggies HP, Dell and Cisco in their server offerings. With the introduction of new server-class chip named Xeon E7 v2, all the three unveiled latest versions of their respective servers featuring the chip.

For its SSDs, Intel uses NAND chips that are jointly produced by Intel and Micron. Due to a prevailing oversupply situation, NAND prices are declining continuously. At the same time, efficient production process has also helped to keep costs down. This bodes extremely well for Intel as it can control the component price for its SSDs and hence expect better profitability.

Market research firm IDC expects global spending on servers and storage to go up as enterprises seek to refresh their portfolio. The growth forecast of just 3% might not look great, but it’s better than last year’s decline rate. The forecast would mean a lot to Intel as demand for its offerings could increase.

Focusing On Smartphone & Tablet Market
Intel is becoming more confident about gaining foothold in the smartphone and tablet market. To record actual improvement in this business, the company will change its reporting pattern starting this quarter. In the current format, Intel will record sales under a separate segment namely Mobile and Communications Group, instead of combining it under the Other Intel Architecture Operating segment.

Intel has recently launched its Bay Trail chip targeting the smartphone market. The company has also set up a target of selling 40 million chips for tablets in 2014. The new segment reporting will be encouraging as Intel’s position in these markets will be clearly visible and it will be easy to track how close it is to reaching the 40-million dream.

Parting Thoughts
Till now, it was difficult to assess Intel’s position in the mobile devices space, but things will change from now onward. PC market stabilization is indeed a good sign and Intel will leave no stone unturned to capitalize on it. Growing demand for data centers is a catalyst for Intel and it is playing the right cards here. With high expectations in the PC, server and SSD areas, Intel is expected to report an exciting first-quarter performance.


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