Intel Corporation (INTC) – Nothing Good Happens In Q1: Nomura

Intel Corporation (INTC) – Nothing Good Happens In Q1: Nomura

The quarter ending March has been seen as the weakest month for PC industry in general and this year was no different with demand declining by 15 percent. Intel Corporation (NASDAQ:INTC), which will be coming out with its earnings soon, recognizes this pattern and is “cautiously optimistic”, says a report from Nomura. The chip maker’s “cautiously optimistic” behavior is backed by a greater mix of touch-enabled ultrabooks, lower price points ($499), and the launch of Haswell processors. The report expects the company to reiterate its full-year capex guidance.

capex and capex growthtrends 2010 2013E

Most of the experts believe that Intel will reduce its capex due to weak PC demand. But the report from Nomura notes that the $13 billion investment from the company is independent of PC demand as the company wants to protect its Core business, which the lines between notebooks and tablets blur. The investments will help the chip maker to “avoid meaningful revenue compression.”

intel total earnings

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Intel Corporation (NASDAQ:INTC) will soon be coming out with its Haswell processors, which will reduce the power consumption to 7-10W. However, Nomura believes that the company may need one more node transition (14nm Broadwell) to bring Core to tablets. This becomes all the more important for the company due to the growing popularity of Core notebooks. In 2012, Nomura estimates “Core notebooks accounted for $17bn or 1/3rd of total sales and almost half of earnings per share.”

The chip maker believes that Haswell CPUs will provide a significant improvement for battery life. Considering this, Nomura believes “OEMs will likely build cautiously ahead of Haswell in June and Microsoft Corporation (NASDAQ:MSFT)’s OS refresh (Blue).”

intel would need to go to 14nm to bring core chips to tablets


Intel Corporation (NASDAQ:INTC) entered the first quarter with the highest level of inventory in the last five years, which could negatively impact gross margins for the second quarter. Gross margins for the second quarter are expected to remain flat at 52 percent. Nomura lowered its first quarter estimates of revenue/ EPS to $12.4bn/$0.36 from $12.7bn/$0.39. For full 2013 EPS is expected to decline to $1.75 from $1.85.

The increased capex from the company could limit the future share repurchases and investor confidence in the dividend. Intel reported about $19 billion in operating cash flow and repurchased $5 billion of shares while returning $4.5 billion in dividends. Considering $13 billion in capex in 2013, the report expects further reduction net cash flow, a higher share count, and growth of the dividend.


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