Intel Corporation (INTC) 4Q Preview: A Look At Revenue, GM And Capex

Intel Corporation (INTC) 4Q Preview: A Look At Revenue, GM And Capex
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Intel Corporation (NASDAQ:INTC) will report its 4Q earnings after the bell on Thursday. There’ve been numerous previews already, on Wednesday,  Credit Suisse Group AG (NYSE:CS) analysts put together its research note, “Our Thoughts on Rev, GM, and Capex Into Earnings.”

Intel Corporation (INTC) 4Q Preview: A Look At Revenue, GM And Capex

The firm has an “Outperform” rating on Intel with a $32 price target. The company is currently trading at $22.48.

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Here are some highlights from the report:

Bottom Line

  • There are three key issues for the stock: (1) Revenue outlook (2) GM outlook and (3) CY13 Capex Guidance.
  • Investors’ view on revenue seems to be in-line with current consensus estimates plus or minus, for capex, it seems to be highly varied with no solid conclusion.
  • Revenue in C1Q down 2-9%; in-line with Street, C2Q revenue to go up and a robust enough cyclical recovery in PCs to support full year revenue of +3-5%.
  • C1Q is GM’s Bottom at/about 57% +/-, C2Q gross margin at/about 59% +/-, and full year in the range of 58-62%.
  • Capital spending guidance could be significantly influenced by changes in strategic direction (i.e. foundry, 450 million), but significant spending on Brick and Mortar should be highlighted: $4.7 billion last year, $2.9 billion in 2011 vs. 2008-2010’s $1.0 billion average. If INTC were to revert B&M to the 2008-2010 average (i.e. the multiyear fab building is winding down) and WFE spending was  flat, capex could be $7.6bn without signaling any lack of confidence in either its full year demand or a structural change in the business model/strategy.
  • It appears as though INTC could have their “capex-cake” and eat it too.
  • Adding another level of uncertainty to rev/GM’s guidance, especially around full year metrics, is the current CEO transition.

Expect C1Q13 Revenue Guide In-Line, Marking the Bottom

  • Some green-shoots from the PC supply chain: (1) PC DRAM spot/contract prices are +54%/+15% off the Nov. bottom, (2) DecQ NPD Data showed units +17% q/q, above seasonal average of +9%, (3) Digitimes reported that NB shipments should return to “normal” in March before a substantial pick-up in April (Haswell)
  • Expect Intel Corporation (NASDAQ:INTC) to guide MarQ revenue to $12.4-$13.4bn (-2% to -9% q/q) with the midpoint of $12.9bn, roughly in-line with the normal seasonal pattern of -4.9% and Street at $12.9bn (-4.6%), but below CS at $13.2bn (-2.9%).
  • Per segment, expect PCCG (63% of rev) to be -2% to -10% q/q versus seasonal -3.0% and DCG (20% of rev) to be -2% to -6% versus seasonal -6%. Analysts highlight that historically TW NB ODM units have been a strong predictor of Intel’s shipments (R-Squared of 0.591 q/q and 0.999 absolute) and that current expectations for ODM’s suggest INTC units -5% to -10% q/q.
  • Expectations for NB ODMs would seemingly imply a sharp decline for Intel, highlighting that ODMs tend to underperform Intel  in C1Q (avg. underperformance of 620bps) implying Intel units should be down less than NB ODMs and leaving some cushion to the PCCG estimate of rev -2% to -10%.
  • On DCG, enterprises pushed out orders in C3Q and are expected to remain cautious with spending in C4Q given lingering macro concerns, however, there’s potential for a modestly above seasonal C1Q (-6% q/q), as (1) C3Q/C4Q was/is expected to be below seasonal, (2) enterprises should be less hesitant to spend, given less macro uncertainty and (3) trends in Networking/Cloud remain strong.


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