Intel Lowers Its Q1’15 Outlook On Account Of Weakening PC Demand

Earlier this week, Intel (NASDAQ:INTC) lowered its Q1 2015 outlook as a result of weaker than expected demand for business desktop PCs and lower than expected inventory levels across the PC supply chain. The company has lowered the midpoint of its Q1 2015 revenue guidance from $13.7 billion, plus or minus $500 million, to $12.8 billion, plus or minus $300 million. The gross margin guidance remains intact at 60%, plus or minus a couple of points. Additionally, Intel has withdrawn its 2015 guidance and will update the yearly outlook along with its Q1 2015 earnings release next month.

For 2014, Intel expected its PC revenue to be down by a low single digit percentage and for operating profit to be roughly flat year-over-year. However, the company’s focus on re-inventing the computing experience, and on serving the low-end to the high-end of the market, helped it exceed its PC target for the year. It closed 2014 with a 4% increase in PC revenue and a 25% increase in operating profit. In comparison, the global PC shipments declined marginally in 2014. At its Q4 2014 earnings call in January, Intel announced that the PC supply chain appears to be healthy with appropriate inventory levels, as it entered the first quarter. However, the company now claims to be seeing lower than expected Windows XP refresh in small and medium business and increasingly challenging macroeconomic and currency conditions, particularly in Europe.

Re-affirming the weakening PC demand, research firm IDC recently lowered its PC outlook for 2015. The firm now expects global PC shipments to decline by 4.9% this year as compared to its initial estimate of 3.3%. “Although portions of the market saw genuine improvements in demand during the second half of 2014, part of the 4Q14 volume was inflated by an inventory build-up of “Windows 8.1 + Bing” systems in anticipation of Microsoft scaling back subsidies in early 2015.” IDC expects the short term impact to hit consumer channels as they work to clear stock. Additionally, the firm believes that while recent processor updates have generated positive reception, more significant product refreshes from Intel and Microsoft will be released later in the year, shifting OEM product updates and consumer interest toward the latter part of the year. Accordingly, IDC has lowered the rate of decline in PC shipments for 2016 and 2017, and now forecast PC unit sales to decline to 291 million by 2019. ^[1]

At the 2015 Consumer Electronics Show (CES), Intel launched the full lineup of its 14 nm fifth generation core line of Broadwell processors, which is the most energy-efficient Core processor in Intel’s history. Broadwell offers up to a 22% improvement in 3D graphics performance and video conversion runs 50% faster. Intel claims a system with a Broadwell chip can run up to 1.5 hours longer on battery than one powered by the Haswell chip. ^[2] Intel has launched a number of new systems, based on Broadwell  in the current quarter. These designs include the thinnest, lightest and most energy efficient notebooks, 2-in-1s, Ultrabooks, Chromebooks and mainly PCs. Apple (NASDAQ:AAPL) has been widely rumored to be waiting for Intel to ship Broadwell in order to begin production of a new, redesigned MacBook Air. ^[3]

Intel is expected to launch its Skylake platform, Broadwell’s successor, in the second half of 2015. Skylake is said to be based on a completely new 14nm core and will feature several architectural enhancements and will be supported by a new chipset.

New platforms and designs can help spur PC demand in the long-run.

Our current price of $34 for Intel is approximately 10% higher than the the current market price.

See our complete analysis for Intel

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1. IDC Lowers PC Outlook for 2015, While the Long-Term Outlook Improves Slightly, IDC Press Release, March 12, 2015 [↩]
2. Intel touts tardy Broadwell Core CPUs for laptops, PCs, The Register, January 5, 2015 [↩]
3. Intel officially unveils full Broadwell-based Intel Core CPU lineup, appleinsider, January 5, 2015 [↩]