Intel Corporation (NASDAQ:INTC) reports their second quarter 2013 financial results after the market closes on Wednesday, July 17, 2013.

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Analyst consensus expectations for the second quarter, 2013 is for $0.39 in earnings per share (EPS) on $12.89 billion in revenues for expected year-over-year declines of 32 percent and 5 percent respectively.

Since the last earnings report in April, both the revenue and earnings estimates have remained stable and have not been revised lower during the quarter, which is a plus. In Q1 2013, Intel Corporation (NASDAQ:INTC) revenues fell 3 percent year-over-year (y/y), while EPS fell 29 percent. This is better than expected, and more importantly, Q2 2013 guidance was inline with expectations.

Intel Focus on product mix for 2Q13

Deutsche Bank AG (NYSE:DB) (ETR:DBK) model  2Q 13  at  $12.96b  (+3 percent  q/q)/EPS  $0.42,  which  implies  a  gross margin of 58.0 percent  (in-line  with  guide).  This  is  at  the  mid-point  of  company  guidance ($12.4 billion  –  $13.4 billion)  and  slightly  above  the  Street  estimates  of  $12.89 billion  (+2 percent q/q)/EPS  $0.39.

They expect Intel Corporation (NASDAQ:INTC)’s  product  mix  will  continue  to  be  solid. Haswell  is  the  most  obvious  benefit  in  the  quarter,  but  they  also  anticipate  a rebound  in  Xeon  and  Simpson Manufacturing Co, Inc. (NYSE:SSD)  shipments.  Sell-in  of  Clovertrail  may negatively impact product mix, but they believe strength at the high-end would offset this.

Deutsche Bank remains above Street on DCG and Other IA for 3Q 13

Deutsche Bank AG (NYSE:DB) (ETR:DBK) 3Q 13E is $14.0 billion (+8 percent q/q)/$0.57, which is above Street estimates at $13.8 billion (+7 percent q/q)/$0.50  but  slightly  lower  than  seasonality  of  +9 percent  q/q.  They  are  expecting PG&E Corporation (NYSE:PCG)  to  grow  +6 percent  q/q,  below  normal  3Q  seasonality  of  +8-10 percent  q/q,  but directionally benefiting from OEM’s restocking ahead of holiday season.

DCG should also benefit from the launch of Ivy Bridge-based Xeons, and they model revenue +12 percent q/q.  Although this q/q change is large, they note DCG revenue is lumpy  and  has  experienced  double  digit  q/q  growth  many  times  in  the  past (2Q 10,  2Q 12  etc.).  Seasonality  and  new  design  wins  should  boost  Other  IA (DB  +15 percent  q/q).  Other  segments  (SSD’s  and  software)  are  also  expected  to perform  well.  Deutsche Bank  model  GM  growth  of  +440bps  q/q  to  62.4 percent  on  higher revenue and lower product costs.  While this q/q ramp is large, it is in-line with the progression needed to hit Intel Corporation (NASDAQ:INTC)’s full-year GM guidance of 60 percent.

Investment mode likely to continue in 2H, with slight downside risk

Deutsche Bank AG (NYSE:DB) (ETR:DBK) model capex of $2.25 billion in 2Q 13 and $11.5 billion for 2013E, at the low end of Intel Corporation (NASDAQ:INTC)’s $12 billion +/- $0.5 billion guide. This guidance implies 2H 13 capex of $7 billion, a sharp acceleration  from  $4.4 billion  in  1H 13.  If  Intel  chooses  to  change  its  2013  capex guide, they expect the adjustment to be minor and likely to the downside if the company achieves better re-use of existing equipment.

Look ahead to returns in 2014

Intel Corporation (NASDAQ:INTC)’s high level of investment (capex/opex) are likely to pressure FCF/EPS in 2013; however these investments should deliver returns in 2014. Investments in capex will reduce Intel’s costs, help boost GM in 2014 and drive share gains across the general computing market. Similarly, after growing sharply in 2012 and  2013  they expect  opex  to  moderate  in  2014  as  major  investments  in graphics,  basebands  and  low  power  roadmap  are  largely  complete.  The improved margins and lower capex will boost FCF and improve cash returns to shareholders.

Consequently Deutsche Bank AG (NYSE:DB) (ETR:DBK) reiterate Buy rating and $26 P/T.