Intel Earnings Preview: What We Are Watching

by Trefis Team
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Intel (NASDAQ:INTC), which competes with AMD (NYSE:AMD) in the PC microprocessor business, is set to announce its Q1 2012 results on Tuesday, 17th April. After three quarters of solid gains in 2011, the company’s fourth quarter saw a slight decline in revenue. However, it posted a record annual revenue of $54 billion for the entire year, backed by growing PC sales in the developing countries and improved microprocessor pricing due to launch of Sandy Bridge chips. We believe that due to the expected moderate growth in PC market, slow adoption of ultrabooks and hard drive shortage, the Q1 results may not be as spectacular as last year.

See our complete analysis for Intel

Impact of Global PC Trends

An unfavorable economic environment and market dynamics favoring mobile devices such as tablets & smartphones are some of the major factors that have moderated the global PC market growth, which is still being supported by the potential in emerging markets. According to Gatner Inc., the PC shipments will remain weak in 2012 and are expected to grow at a moderate rate of 4.4% in 2012. [1] According to our current estimates, the PC sales (excluding netbooks) will grow at 4.7% for 2012.

Intel, being 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 these segments. Therefore, a drop in the PC sales growth rate can have a significant impact on Intel’s results.

Ultrabook Impact

The launch of Intel powered ultrabooks last fall failed to garner much attention. Although the 3D tri-gate technology with 22nm Ivy bridge processor may serve as a technical advancement to lure customers, Intel will need to work on its ultrabook pricing product to appeal to masses.  We believe that because of the slow adoption, ultra books will not have a significant positive affect on Q1 results. However, with Intel planning to slash prices in the coming months, Ultrabook sales may go up in the coming quarters.

Hard Drive Supply Shortage

The hard drive shortage that resulted from flooding in Thailand in October 2011, is likely to impact Intel’s Q1 results. According to Gartner, the floods had a limited impact on December quarter shipments. A major impact will be felt in the 1st half of 2012 and potentially continue throughout 2012. In anticipation of the shortfall in supplies, the demand for chipsets by PC manufacturers went down.

This year could turn out to be an interesting year for Intel as it gear up to face competition from ARM based players, entry of Qualcomm (NASDAQ:QCOM) into the PC microprocessor market and the launch of Windows 8. How the company fairs, will depend on the success of Intel powered ultrabooks and breakthrough in Intel’s atom processors. The increase in the marketing and advertising of ultrabooks could help Intel retain its current market share in notebooks.

We plan to review our current price estimate of 30.52 for Intel, post the Q1 result.

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Notes:
  1. Gartner Says PC Shipments will grow 4.4% in 2012, Gartner Press Release, Mar 8, 2012 []
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