Intel (NASDAQ:INTC) posted a sequential decline in its last quarter results amid a slowdown in the semiconductor industry. The company is set to announce its Q2 2012 results on Tuesday, July 17. With a revival in global PC shipments growth, increasing presence in the mobile computing space and growing adoption of ultrabooks, the company might be able to post better results compared to the last quarter. However, we do not expect any significant gain as the industry is yet to fully recover from the aftermath of the hard disk drive shortage.

See our complete analysis for Intel

Recovery In Global PC Market

Coupled with an unfavorable economic environment, the hard drive shortage that resulted from flooding in Thailand in October 2011 negatively affected the demand for chipsets by PC manufacturers. The impact of the same trickled over to the first half of 2012, leading to a decline in global PC shipment growth rate. According to research firm IDC, the worldwide PC market registered a meager 2.3% y-o-y increase during Q1 2012. ^[1]

Intel, one of the largest players in the microprocessor industry (84.3% and 73% share respectively in the notebook and desktop processor markets), derives a majority of its revenue from the PC market. Therefore, a drop in PC sales will slow down its revenue growth rate.

However, with the upcoming Windows 8 launch and the growing acceptance of ultrabooks and other ultra-thin laptops, we expect the situation to improve by the second half of the year. We estimate the PC sales (excluding netbooks) to register 4.7% growth in 2012.

Growing Focus On Mobile Computing Will Not Have A Significant Impact On Q2 2012 Results

With the launch of first Intel architecture phone by Lava International in April this year, Intel marked its entry into the lucrative smartphones and tablets market. It continued with the pace with the subsequent launch of two more Intel-powered smartphones last month – Lenovo LePhone 800 and Android smartphone code-named “San Diego”. (See: Intel Launches Lenovo & Orange Smartphones To Seize Mobile Opportunity)

With the exponential growth in sales, smartphones and tablets are expected to replace PCs as the future engines of growth for the semiconductor  market. Though we believe that Intel’s growing focus on the mobile computing segment is a good long-term strategy to keep pace with changing consumer trends, we do not expect this to have any significant impact on the current quarter earnings.

Last month, Microsoft introduced its in-house tablet Surface, which is powered by Intel Core i5 chips and more recently HP chose Intel over ARM architecture for its Windows 8 tablets. Though the ARM architecture continues to dominate the mobile computing space, we feel that ARM-based players such as Qualcomm (NASDAQ:QCOM) and Nvidia (NASDAQ:NVDA) should be wary of Intel as the latter has close to 20 tablets in its pipeline up for launch in the coming year.

Mainstream Pricing Of Ultrabooks To Drive Up Sales

With the launch of its Trinity APU’s, AMD (NYSE:AMD) is all set to power the next generation of low-power ultra portable laptops. Having up to 12 hours of battery life and almost double the performance per watt of last year’s Llano APUs, Trinity could give stiff competition to Intel, especially in emerging economies where the demand for low cost notebooks are expected to rise.  In addition, the entry of ARM based players in the market later this year will further intensify competition for both Intel and AMD.

After a tepid response for ultrabooks in 2011, the company introduced a $300 million fund to achieve improvements in ultrabooks. Earlier this year, it launched its largest advertising campaign in a decade. It has more than 21 designs available presently and another 100 in the pipeline for 2012.

According to the buzz on the Internet, Intel has slashed the prices of its microprocessors by over 10% to achieve mainstream pricing which would help increase user adoption of Ultrabooks. Though a more competitive price might drive up sales of ultrabooks, we believe that Intel’s share in the notebook microprocessor market will continue the downward trend throughout our forecast period. (Read related article here)

Our price estimate of $30.62 for Intel stands at a premium of above 10% to the current market price.

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1. PC Market Returns To Positive Growth, Though Gains Remain Small, IDC Press Release, April 11, 2012 [↩]