Intel’s Earnings Preview, What We’re Watching

We expect Intel (NASDAQ:INTC) to report its Q1 2011 earnings on April 19. We take this opportunity to take a look at some of the key aspects of earnings that investors might watch out for given that Advanced Micro Devices‘ (NYSE:AMD) Brazos and Intel’s Sandy Bridge chips have both been launched in the past few months and Nvidia’s (NASDAQ:NVDA) making further inroads into the notebook market, for instance with MacBook Pro, could shed light on the outlook for these chip giants. Our price estimate for Intel stand at $27.23, which is at a premium of roughly 36% to the market price.

In Intel earnings, we might see some seasonal impacts of slightly lower processor unit sales; however, we still believe there will be plenty of new data to digest with respect to Atom and Sandy Bridge while monitoring other core business units such as Intel’s servers unit.

Will Intel Continue its Growth in Servers?

Intel saw tremendous growth in this segment last quarter. The company stated during its Q4 2010 earnings, “Our Data Center Group had yet another terrific quarter, with revenue up 15% sequentially and annual revenue up, a very strong 35%.” ^[1]

Obviously, this comes not just from the recovering economy but also from market share gains in the server microprocessor market. We estimate that for full year 2010, Intel’s server market share stood close to 93%. It will be interesting to see whether Intel can continue its dominance in this area or if AMD will start taking market share. We acknowledge that AMD is taking a shot at Intel with Bulldozer, which should impact earnings later in the year.

How Much Improvement Atom Has Made?

Intel’s push into the mobile market has been a topic of interest for investors given mobile’s explosive growth. The company’s Atom microprocessor dominates netbooks but has not made a significant impact in the smartphone or tablet markets. Intel’s revenue for Atom for the year 2010 was about $1.6 billion, which was about 9% growth vs. 2009. ^[2] This is very small considering the overall size and growth rate of the mobile market, in particular smartphones, and a clear indication that Atom has some ways to go before benefiting more fully from the growth in smartphones and tablets.

Will Q1 2011 be any better? We have to wait and see. We note that despite its small contribution now, we expect faster revenue growth for Atom in future years driven by higher shipments and offset by a decline in average price. See our estimates below.

Impact of Sandy Bridge

Sandy Bridge is another interesting story. The company has launched its CPUs that combines the power of a GPU within a chip. It will be interesting to see if Intel has improved its average selling price in Q1 due to the demand for its new product. Also given some hiccups around design flaws shortly after the chip’s launch, we await further details on any extraneous costs or impacts related to this though we expect they will be small.

You can see the complete $27.23 Trefis price estimate for Intel’s stock here.

1. Intel’s Q4 2010 earnings transcript [↩]
2. Intel commentary on Q4 2010 results, pdf report on Intel’s official website [↩]