Intel Corp. (INTC) released its most recent earnings report on Tuesday, slightly missing analysts’ expectations. Revenue came in at $12.78 billion, compared to the $12.9 that was forecasted. This was relatively flat compared to the $12.76 billion the company reported in the same quarter a year earlier. Income was up 3% in the meantime, and earnings per share increased 8% over a year ago to 41 cents. The revenue performance is obviously disappointing, but the increase in margins shows that the management team knows how to squeeze a profit out of stagnant revenue. The company has been facing PC headwinds, as the market for these devices has been decreasing. Importantly, the decent performance during the previous quarter shows that Intel’s strategy to decrease reliance on the PC market is paying off, and that the stock price is poised to break out in the future. I Know First published an article on March 27Â predicting that the stock price was set to start climbing, and it has already increased over 10% since that time and will continue climbing higher.
Increased Emphasis on Growth Markets
In the face of declining PC sales, Intel has been focusing on other markets to reduce its dependence on this market. In order to do so, it has implemented a growth strategy dependent on building business in the company’s other markets, including mobile, data center and Internet of Things. The data center group continued its brisk growth with $3.7 billion in revenue, up 19% year-over-year. The strong results in this business group was driven by Intel’s manufacturing and architectural leadership combined with opportunities driven by the values of cloud computing in each PC usage.
While the performance of the data center group was a nice boost, the Internet of Things is what the company is hanging its hopes on. This business group, where small chips are embedded in retail, transport, industrial, and domestic products, could be the key to the future in technology, as the market is projected to expand substantially in the coming years. IT research group Gartner has forecast that 4.9 billion new objects will be connected to the Internet this year, supporting $69.5 billion of services spending this year. This number is expected to jump to $263 billion by 2020.
Intel reported $553 million in revenues from connected devices during the previous quarter. This represented an 11% increase over the same quarter a year earlier. Last year, the Internet of Things group reported a 19% revenue increase over 2013. Growth in this market is key to Intel’s future, as it needs to diversify after largely missing out on the smartphone boom of recent years. The performance in this field, along with the continued strong performance in data centers, helped Intel offset lower than expected demand for business desktop PCs in the first quarter.
Better Growth Prospects For PC Business Coming
While the growth businesses had successful quarters, Intel still gets most of its revenues from chips that serve as calculating engines in PCs. This business has been suffering for several years as consumers stopped buying these devices, especially desktop PCs, and shifted to smartphones and tablets. It looked as though this trend was going to reverse last year, as Microsoft (MSFT) decided to phase out support for its aging Windows XP software.
This did not hold up, however, as headwinds reappeared in March. Intel was forced to revise its first quarter outlook at that time, slashing projections to the levels that revenue and profit came in at for the quarter. The reason the company provided was that small and medium sized businesses weren’t upgrading desktop PCs in connection with the Windows XP phase-out as quickly as they had expected.
This trend could be expected to reverse soon for good when considering two facts. One is that Windows is introducing its Windows 10 operating system in the third quarter, and the other is that there are currently over 600 million PCs in use that are more than four years old. As desktops become more powerful, people are keeping them longer, but will still eventually have to upgrade. The third quarter could be huge, as these consumers could be waiting for a new operating system to flip over. If PC sales rebound later in the year, as the growth businesses continue to thrive, Intel’s stock price could soar.
Market analysts upgraded the stock after the earnings report for the reasons explained above. The bearish behavior of PC sales is now fully accounted for in the stock price, and that the strong performance in the data center business looks promising for future growth. Many analysts have predicted that the PC market has finally bottomed out, and that Intel is set to prosper when the trend has finally reversed.
Algorithmic Analysis
I Know First supplies financial services, mainly through stock forecasts via their predictive algorithm. The algorithm incorporates a 15-year database, and utilizes it to predict the flow of money across 2000 markets. The algorithm has more data to forecast within the long term and, naturally, outputs a more accurate predication in that time frame. Having said that, intraday traders, along with short-term players, will also benefit by taking the algorithmic perspective into consideration.
The self-learning algorithm uses artificial inelegance, predictive models based on artificial neural networks, and genetic algorithms to predict money movements within various markets.
The algorithm produces a forecast with a signal and a predictability indicator. The signal is the number in the middle of the box. The predictability is the number at the bottom of the box. At the top, a specific asset is identified. This format is consistent across all predictions. The middle number is indicative of strength and direction, not a price target. The bottom number, the predictability, signifies a confidence level.
Having explained how the algorithm works, it is worthwhile to see if the algorithm agrees with the bullish fundamental analysis of the company. Figure 1 includes the three-month and one-year forecasts for Intel Corp. from April 15th, 2015. In both forecasts, the company has a positive signal, indicating the algorithm is bullish for the stock.
Figure 1. Algorithmic Forecast For INTC.
The algorithm’s forecasts included here are in agreement with the fundamental analysis. Over the long term, the stock price is set to continue climbing as the company’s growth businesses continue to excel. The Internet of Things, in particular, has immense potential, as this market is set to grow exponentially in the coming years. Furthermore, the PC market appears to have finally bottomed out, and sales should begin to increase, as consumers will need to upgrade. Microsoft’s new operating system Windows 10 can be a real catalyst for this development. Most importantly, Intel’s management team has a proven track record of increasing profits even when facing significant headwinds, showing they are more than capable of taking this company to new heights in the future.
