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Intel Earnings Preview: No Surprises in the Cards - Analyst Blog

Intel INTC estimates have come down significantly since the company lowered its first quarter expectations. They now stand at 40 cents, matching the most accurate estimate and indicating an Earnings ESP of 0.0%.

Intel also carries a Zacks Rank #4 (Sell). Generally, stocks with Zacks Ranks of #1, #2 or #3 and positive ESP indicate a positive surprise while surprise prediction for sell-rated stocks (#4 and #5) is difficult irrespective of ESP.

We already know that the company is up against FX and PC market headwinds, which will continue to impact results this quarter. Let's see what the rest of the business is likely to do-

Revenue

With mobile and PC merging this quarter, there could be some revenue offsets and definitely, margin pressure. The rest of the story may not change that much as transition to mobile and emerging markets continues. Intel will definitely feel any gains from stabilization in developed markets because of its strong market position, particularly at the enterprise.

Intel also has wins at Google's GOOG Chromebooks and Surface devices, so it is well fortified for the BYOD trend. Windows upgrades could grow into less of a catalyst as Microsoft MSFT takes measures to make it more ubiquitous.

The server business is on track to benefit from Intel's strong product lineup and market position. Intel has been innovative on every front, building on both the cloud computing and HPC sides. This business is likely to remain extremely strong for Intel.

Internet of Things (IoT) should also see some progress this quarter with business improving as we move through the year as Intel continues to introduce new products and score customer wins. Intel's focus on China and on building relationships with Chinese players will come in very handy for its computing, mobile and IoT ambitions.

Gross Margin

The mid-point of guidance indicates a gross margin of 60% and Intel generally reports in line with its guidance. There are of course a few variables, including the mix shift to lower-end Atom devices and the subsidy it pays tablet makers for using its more expensive chips. While Intel has promised that the subsidy amount will come down this year, it will be interesting to see how the company intends to achieve this. Increased manufacturing of more routine processes in China could be part of the plan.

Returning Value

Both share repurchases and dividends may be expected to continue.

Capex

Intel may revise its capex expectations slightly, which it lowered to $10 billion after fourth-quarter results.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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