What Intel’s Earnings Beat Means For Enterprise And HDD Players

What Intel’s Earnings Beat Means For Enterprise And HDD Players
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Intel Corporation (NASDAQ:INTC) reported earnings per share of $0.38 and revenues of $12.8 billion for the first quarter of 2014 yesterday after market hours. The company therefore beat analysts’ expectations of earnings per share of $0.37, though revenue was in-line with consensus, in a quarter known to be slow for the company’s sales.

“In the first quarter we saw solid growth in the data center, signs of improvement in the PC business, and we shipped five million tablet processors, making strong progress on our goal of 40 million tablets for 2014,” said Intel CEO Brian Krzanich, though he remained ambivalent on whether the company could sufficiently boost its sales on products to reduce its reliance on the personal computer market.

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Following the announcement, Intel Corporation (NASDAQ:INTC) shares vaulted to a new 52-week high in late trading.

What do tech industry bellwether Intel’s results imply for players in the enterprise hardware/software and hard disk drive industry?

Analysts Aaron C Rakers, Joseph Quatrochi and Andrew Shinn at Stifel provide an industry update in their April 15, 2014 research note.

Revenue at Intel’s Data Centre Group +11% year-on-year

Revenue in Cloud, Storage, and Networking businesses in Intel’s Data Centre Group grew over +20% on an annualised basis in the reported quarter. However, traditional enterprise revenue grew at a more muted +3% year-on-year, and overall Data Centre Group revenue rose 11% on the year.

“Intel highlighted strong demand for Ivy Bridge, while also stating that the company’s well-anticipated Grantley (E5-2600 v3) launch remains on track,” observe the analysts. “Our industry discussions suggested Grantley is being seen as providing up to 60% performance improvement in some HPC benchmarks and some cloud vendors have already placed early orders,” they add.

Super Micro and HP could benefit

The strong demand for Ivy Bridge is expected to work in favor of Super Micro Computer, Inc.(NASDAQ:SMCI), which derived nearly 10% of itsC4Q13 revenue from that processor. Super Micro also stands to gain from the Grantley launch, considering it is Intel’s early seeding partner. According to the Stifel analysts, “Intel does not anticipate a material pause in demand in front of the Grantley launch later this year.”

Meanwhile, Hewlett-Packard Company (NYSE:HPQ), is expected to be a potential beneficiary from growth in Intel Corporation (NASDAQ:INTC)’s x86 server products because revenues at its own Industry Standard Server x86 line account for nearly 60% of its total enterprise hardware sales.

Stable PCs and solid cloud growth good for HDD makers

“Intel highlighted stabilisation (referring to PCs) driven by enterprise demand, as well as some signs of strengthening in emerging markets,” says the Stifel research note.

Compared to Gartner’s estimates for 1Q14, which projected PC shipments growth of -2% year-on-year and -8% sequentially, Intel’s PC/Client segment revenue growth was -1.4% year-on-year and -7.8% sequentially, observe the analysts.

“We believe Intel’s consistent PC comments, along with continued solid double-digit growth in cloud, could be viewed as a net positive data point for HDDs,” say the analysts.

Western Digital Corp (NASDAQ:WDC)/ HGST could therefore be a key beneficiary, considering it has a strong relationship with Intel Corporation (NASDAQ:INTC) for NAND flash, which earned record revenues for Intel during 1Q14, on account of leaping demand from the cloud industry.

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