Intel Corporation Estimates Decline, Downside Possible In Server Chips

Intel Corporation Estimates Decline, Downside Possible In Server Chips
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Intel earnings estimates have been on a decline ahead of its earnings report, which will be revealed today after market hours. Much of the decline in estimates is due to the chip maker’s struggling PC business.

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Performance of Intel DCG doubted

A month ago, the earnings estimate was 52 cents, while a week ago it was 51 cents, but now it has come down to 50 cents on revenues of $13.1 billion, according to Thomson Financial. Wedbush Securities analyst Betsy Van Hees has also lowered her estimates for the chip maker. Hees believes a lower estimate “lowers the bar for them,” referring to the expectations. Hees expect revenue to come in at $13 billion.

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Apart from the chip maker’s PC division, its data center group may also disappoint, believes Bernstein Research’s Stacy Rasgon. In a note on Monday, Rasgon lowered the firm’s rating on Intel to Underperform from Market Perform and slashed their price target to $25 from $29, noting that a weak show from the DCG would be “far more damaging to the stock than the spectre of weak PCs.”

Windows 10 to blame?

At the start of the year, sentiment was a bit positive as analysts were expecting Windows 10, which is due later this month, to push chip sales significantly. Analysts were hoping that PC users and businesses will upgrade to the new Windows version. But considering that Microsoft, is offering a free upgrade to current Windows 7 and 8 users, “there are now doubts about how big that refresh cycle will be,” notes Gartner analyst Mark Hung.

In a report issued last week, Gartner noted that PC shipments were down 9.5% in the second quarter compared to the same period last year. While another research firm, IDC, calculated an 11.8% drop in shipments excluding tablets.

For Intel, PC sales will depend on the Back to School months of August and September. And if sales during this period come in a “little” better than estimates, it will be a positive sign for “Christmas sales,” said Hung.

Despite the struggling PC business, Hees expects Intel to lower its operating and capital expenditures. “I think we could see a nice upside surprise on the bottom line,” she said. Intel has been planning to lay off a substantial portion of its workforce. Last year, the chip maker slashed its workforce by 3,700 employees.

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