What Can We Expect From Intel's Third Quarter?

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Oct 12, 2014

The micro-processor and semiconductor giant, Intel (INTC, Financial), is slated to report its third quarter earnings on October 14, and there are a couple of expectations linked to the earnings from the analysts’ and investors’ standpoint. Analyst consensus is expecting $0.64 per share as earnings on around $14.4 billion in revenue for the expected year-over-year growth of 7% and 5%, respectively. In the previous quarter, the company has itself lifted its revenue and earnings guidance for the remaining year, thanks to the resurgent PC business, revenue growing at the rate of 8%, operating income improving 45% and EPS rising 45% during the second quarter. Now as the bell for the third quarter earnings is about to ring, let’s dive in and find out what could possibly be the highlights for this quarter.

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PC sales bound to improve

Though the PC environment remains challenging, Intel’s expanding reach from the smallest energy-efficient embedded machines to the most powerful supercomputers, helps the company to keep its lead position in the semiconductor industry. In the second quarter, Intel’s growth in revenue was aided by improving PC sales, and even in this quarter Intel expects the revenue to increase by 4% which should be roughly in line with the consensus.

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PC sales and shipments had seen a downhill journey till 2013, but the rate of drop has dropped from 10.3% in 2013 to nearly 4.4% in Q1 2014 and has remained flat in Q2 of 2014. This has been mainly due to Windows XP migration to machines running newer operating systems and commercial spending that has helped in partial revival of the PC sales.

Intel is also working to reinvent PC computing with new form factor innovation, lower price points, longer battery life and an operating system of choice. The company is of the belief that the innovative two-in-one devices and lower price points have helped to gain market share in the PC market. Its close contender, Hewlett Packard (HPQ, Financial), just announced the company split shortly. Intel does not, however, expect this news to have much of an after-effect on its future strategies, and is hopeful to see good progress in the PC sales in the third quarter as well.

Intel expects that more than 70 two-in-one designs would be running on Intel processors for the back-to-school and holiday selling seasons, thus spurring demand for its processors through the year.

Tablet shipments to remain on track

Intel shipped 10 million tablet units in 2013, and has a target of selling nearly 40 million tablet units this year. The company has already shipped around 15 million tablets in first half of the year, and believes that it will be able to stick to its stated target. If the company is able to meet the expectations set by itself, its market share would increase from close to 5% to approximately 15% in the tablet market by the end of the year.

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To expand its low cost tablet offerings, the company announced a strategic agreement with Rockchip, a leading Chinese semiconductor company and mobile-internet system on the chip (SoC) solution provider in the prior quarter. The two companies plan to deliver an Intel branded quad-core mobile SoC platform integrated with Intel’s 3G modem technology primarily targeting the low-cost Android tablet segment.

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This deal will enable Intel to grow in the Chinese market phenomenally, where there are local players offering intense competition. Intel hopes that such expansion into emerging markets will show up in its top line figures as well, and thus the third quarter should be a good one with respect to tablet sales and shipments.

Internet of Things to expand after acquisition

Intel is keen to enter into what is touted to be the next big wave in computing – the Internet of Things (IoT). This computing wave includes all devices except PCs, tablets and smartphones. Gartner estimates that this market will grow more than 30 times, from an installed base of $0.9 billion in 2009 to $26 billion by 2020.

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Taking cue from such concrete research analysis, Intel signed an agreement to acquire LSI’s (LSI, Financial) Axxia networking business and related assets from Singapore-based-Avago (AVGO, Financial), a vendor in analog semiconductor devices, for $650 million in an all-cash-deal. With Intel focusing on building its strengths in the IoT market, analysts are of the opinion that IoT’s contribution to the overall revenue might double over the next year for Intel, and we might see some positive vibes in the third quarter report with respect to this segment.

Final word

All said and done, Intel might be truly on an exceptional growth trajectory which will get revealed after the results are out on Tuesday. Till then, analysts can only speculate and create opinions over the company’s near future. So, let’s stay tuned and keep a close eye on the third quarter earnings which would provide ample information on Intel’s continuous success story for this year.