Intel's First-Quarter Results May Set Tone for Rest of the Year

NEW YORK (TheStreet) -- Intel let some of the air out of the bag last month when it cut its first-quarter guidance, but investors will be looking to see how the PC market is shaping up for the rest of the year when the chip maker reports earnings after the bell on Tuesday. Research firm IDC recently cut its 2015 forecast for the PC market, indicating shipments would fall 4.9%, worse than the 3.3% fall the firm originally expected. Must Read: 10 New Stocks Billionaire David Einhorn Loves Though Intel is expanding into new markets, it's still largely dependent on PC-based revenue. So any significant change to forecasts is likely to have an impact on Intel's top and bottom lines. Of the $14.7 billion in revenue Intel generated in the fourth quarter, $8.9 billion came from the PC Client Group, up 3% year over year. Intel is changing its reporting structure, combining the PC Client Group and the Mobile/Communications Group into the Client Computing Group, effective in the first quarter. The earnings report comes nearly a month after Intel pre-announced first-quarter results would be light for a variety of reasons. On March 12, Intel said it expects revenue to be between $12.5 billion and $13.1 billion, down from a prior view of $13.7 billion, plus or minus $500 million. The world's largest chipmaker slashed the results due to weaker-than-expected demand for business desktop PCs and lower inventory levels, with lower-than-expected Microsoft Windows XP refresh and currency volatility as the primary reasons. Intel kept its gross margin forecast at 60%, plus or minus a couple of percentage points. Investors will be looking to see whether the first-quarter cut is a blip or something more. "We view the slowing demand and significant channel inventory reduction in [the first quarter] as a temporary shock given that demand and inventory are now at historic lows," Deutsche Bank analyst Ross Seymore wrote in a note. Analysts surveyed by Thomson Reuters expect the company to earn 41 cents a share on $12.9 billion in revenue for the first quarter. For the full year, analysts expect the company to earn $2.14 a share on $55.7 billion in revenue. Here's what a few analysts are thinking ahead of the results on Tuesday after the close of trading: Wells Fargo analyst David Wong (Outperform, $40-$50 PT) "As the company updated (lowered) its March quarter guidance on March 12, we think it is likely that March quarter results will be roughly in line with the company's updated guidance. In an uncertain environment in which we are cautious on the chip sector overall, we consider it to be a positive for Intel's stock that expectations have already been lowered heading into earnings and the stock is trading at a P/E multiple that is lower than many other large- and mid-sized chip companies. We think that the March quarter could represent a bottom in Intel's sales and margins for the year. We are reiterating our outperform rating on Intel, Intel remains our Top Pick." Deutsche Bank analyst Ross Seymore (Buy, $38 PT) "We expect 1Q revenue of $12.8b (-13% quarter over quarter), in line with 3/12 revised guidance of $12.8b +/- $300m. We expect PCG rev down 17% q/q led by weakness in desktops. Lower PC demand (SMB and EMEA/FX-related) and greater channel inventory burn drove desktop TAM to a multi-year low. We expect seasonal weakness for DCG revs, down 9% q/q, and MCG net revenue of $10m. Lastly, we estimate IOTG and software revs to decline 5% q/q, and all other to be flat q/q. Starting in 1Q15, INTC will combine PCG and MCG into a single reporting segment called Client Computing Group (CCG). We model GM of 59.9%, down 550bps q/q, driven by higher 14nm unit costs, 10nm start-up costs and lower volumes. With opex declining ~$150m q/q and share count down 1% q/q (DBe buybacks of $2.0b), we model EPS of 40 cents vs. Street's 41 cents." JPMorgan analyst Harlan Sur (Overweight) "We favor OW-rated Intel going into 1Q earnings as we believe PC fundamentals are set to bottom in 2Q. As such, we expect Intel to report an in-line 1Q, consistent with its preannouncement on March 12. IDC also recently lowered 2015 PC growth from down 3.3% to down 4.9%, largely as a result of a sluggish start to the year. However, we believe that PC demand should stabilize as tablet cannibalization in developed markets continues to wane and new products (Win10, Skylake platform) should help. On a positive note, Datacenter growth outlook of mid-teens remains intact and losses in Mobile should lessen as we progress through the year. Our 1Q revenue and pro-forma EPS estimates are $12.8B (down 13% Q/Q) and 40 cents, respectively. We estimate 2Q revenue of $13.6B (up 6% Q/Q) on pro-forma EPS of 54 cents." Must Read: How Intel Wants to Be More Than Just a Chip Company

Click to view a price quote on INTC. Click to research the Electronics industry.

from Latest TSC Headlines http://feeds.thestreet.com/~r/tsc/feeds/rss/latest-stories/~3/EPmOq38U3JA/intels-first-quarter-results-may-set-tone-for-rest-of-the-year.html