Intel Earnings Preview: All Downhill From Here?

Intel is scheduled to release its next earnings report on Thursday, and Wall Street’s expectations are running rather high. The semiconductor manufacturer’s shares have rallied nicely over the last year, but it remains to be seen whether the winning streak can continue.

Analysts from multiple firms have put out their estimates for Intel’s earnings report, saying that business looks alright for now but that could change as early as later this year.

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Intel’s business is “OK” in the short term

In a report dated Jan. 12, Morgan Stanley analyst Joseph Moore and his team said this week’s earnings report will be an important test for Intel stock. They’re expecting the company to post earnings that are about in line with consensus estimates. However, they say data points are starting to move downhill, so they remain cautious on Intel.

They’re estimating revenue of $14.8 billion and earnings per share of 66 cents for Intel’s December quarter. They expect desktop units and their average selling prices to end up being quarter over quarter. However, they expect to see a 5% sequential increase in notebooks with a 1% decline in their average selling price.

They noted better than expected notebook shipments at some manufacturers as some PC brands started to worry that Microsoft plans to cut subsidies for its Windows operating system this year. Of course that could result in lower PC unit growth in the first half of this year.

The Morgan Stanley team expects to see a 4% quarter over quarter decline in data centers, which is consistent with management’s second and third quarter comments about “some positive lumpiness” related to major cloud deployments. They’re projecting a gross margin of 63.8%, which is in line with Intel’s guidance and a slight decrease from the previous quarter because of Intel’s investment in starting production of 10 nanometer chips.

Intel’s first quarter guidance

Looking to guidance for the current quarter, the Morgan Stanley team is still in line with consensus estimates. They wouldn’t be surprised if the first quarter “ends up being sub seasonal,” but they don’t expect the chip maker to guide for sub seasonal results because management continued to say last week at CES that notebook sales going forward remain stable.

They project a 5% quarter over quarter decline in desktop units and a slight increase in average selling prices. They’re expecting to see a 10% decline in notebooks with a slight decrease in average selling prices, putting this about in line with typical seasonality. They expect to see a 2.5% sequential increase and a 15.6% year over year increase in data centers.

The analysts point out that Intel has said it saw “significant positive inventory impacts” during the second half of 2014 that probably won’t repeat in the first half of this year. As a result they expect the data points to worsen, and some of their contacts in Intel’s supply chain are concerned that business will slow down even though end demand remains OK. They also say the weakness hasn’t appeared just yet though, but they remain Underweight-rated on Intel shares with a $30 per share price target.

RBC cuts estimates for Intel

In a report last week, analysts at RBC Capital Markets reduced their estimates for Intel’s earnings report. Analyst Doug Freedman and associate Jeriel Ong now estimate earnings of 65 cents per share for the fourth quarter, compared to their previous estimate of 67 cents per share. For the current quarter, they’re projecting earnings of 46 cents per share, compared to their previous estimate of 62 cents per share.

For revenue, they’re projecting $14.3 billion, compared to their previous estimate of $14.7 billion for the December quarter. For the current quarter, they lowered their revenue estimate from $13.9 billion to $13.2 billion. They believe Intel may have difficulties meeting the previously provided guidance of “mid-single digit” revenue increases year over year for 2015.

The RBC team’s unit estimates are also lower than Morgan Stanley’s estimates. They’re expecting a 6% to 7% sequential decline in desktop builds and a 3% to 4% decline in notebooks. For the current quarter, they expect a seasonal decline of 5% to 10% for both desktops and laptops.