Key Trends To Observe From Intel’s Q4’16 Earnings

Intel (NYSE:INTC) is expected to post its Q4 2016 earnings on January 26th, reporting on a quarter that saw PC shipments decline for the ninth consecutive quarter. Below, we provide a brief overview of what to expect when Intel reports its results Thursday.

We have a price estimate of $31 for Intel’s stock, which is below the current market price.

See our complete analysis for Intel 

Client Computing Revenues Could Continue To Face Headwinds Due To PC Market Stagnation

Intel’s saw a mere 1.3% growth in its client computing revenues in the first three quarters of 2016, on account of stagnation in the PC shipments. In its Q3’16 earnings call, the company claimed that it was seeing demand pick up for PC shipments and an inventory build up in the PC supply-chain, which then implied an improvement in the client computing revenues for Intel in future quarters.

However, according to a recent press release by Gartner, PC shipments have declined by 3.7 percent in the fourth quarter of 2016, on account of weakness in PC shipments during the holiday season. For the full year 2016, the PC shipments have declined by 6.2 percent. Given that Intel still garners more than 50% of its revenues from PC processor sales, the company’s revenues from the client computing segment have likely remained sluggish in Q4. And, we shouldn’t expect the situation to change much in the near term. This is because PC shipment growth is likely to remain weak in the near term. As per Gartner, weak PC sales are because of a fundamental change in the PC buying behavior. An increased dependency on smartphones has stretched PC life cycles longer, offsetting the slight growth from the PC enthusiast market.

Data Center And IoT Segments To Drive Growth

While the Intel’s revenue from PC processor sales has declined by 7% in the last two years, its revenues from the server platform and Internet of Things group have increased by 31% and 28%, respectively, during the same period. It should be noted that until a few years ago, Intel’s revenues were almost completely tied to PC sales. However, the company now derives its revenues from a much diversified portfolio.

According to a press release by Gartner, global server shipments increased in the first three quarters of 2016. Intel’s revenues from server processors have increased by 7% during this period. We can expect the company’s IoT and Data Center segments to continue to outperform in the fourth quarter as well. However, Intel may be challenged by Qualcomm in the server market going ahead. Qualcomm announced its Centriq 2400 chip for data center market in December 2016. The company claims that Centriq 2400 is the world’s first 10-nanometer server processor. Depending on the success of Qualcomm’s server processor, Intel might lose some of its server market share to Qualcomm in future periods. If the company loses 20% of the server market share over the next 5 years, it could imply close to 10% downside in our current price estimate.

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