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