Weak Earnings Growth Makes Guidance Critical for Intel (INTC)

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Intel Corporation (NASDAQ:INTC) reports earnings Tuesday, but investors may be more keen to hear about its on-again, off-again deal for Altera Corporation (NASDAQ:ALTR) than INTC’s quarterly results.

Intel stock INTCINTC was reportedly interested in buying Altera, a maker of programmable chips, to boost its server capability and keep its foundry working at full capacity. (Altera is an INTC customer.)

As we noted, the proposed deal appeared to be a win-win. But talks soon broke down over price, according to reports, and INTC shareholders don’t know if the two companies will try again to negotiate a deal.

A major acquisition would have been nice to steal the focus away from Intel earnings results, that’s for sure. INTC cut its revenue estimate last month and withdraw all other forecasts except for its data-center business. Continuing sluggish in sales of personal computers for enterprise customers are mostly to blame.

With PC sales in what appears to be a secular decline, the Altera acquisition was that much more important. INTC sure could use some growth — especially since it’s not faring well in the fast-growing smartphone and tablet market — and Altera would have allowed it to at least buy some.

Instead of Altera, it looks like investors will have their full attention drawn to Intel earnings, which aren’t going to blow anyone away.

INTC Earnings Look to Be Mediocre at Best

For the first quarter, analysts project Intel earnings of 41 cents per share, up from 38 cents per share in the same quarter a year ago, according to a survey by Thomson Reuters. Revenue, meanwhile, is expected to be flat vs. last year. Analysts expect the top line to rise 1.1% to $12.9 billion.

More worrisome is how INTC fares against those forecasts in wake of slashing its guidance a month ago. Hopefully, Intel cut its revenue outlook enough so that the top line — and other figures — can beat Wall Street estimates. If INTC manages to miss even its lowered guidance, you can expect more pain for Intel stock.

After all, the first quarter is supposed to be one of the better periods in what’s projected to be a down year. The Street estimates that full-year Intel earnings will fall to $2.14 per share from $2.31 a year ago. Full-year revenue is likewise projected to decline.

The crux of the bear case against INTC is that it depends primarily on the PC market, which suffered a decline in global sales last year.

Intel stock is already off 12% for the year-to-date, and as we head into its earnings release — especially if recent history is any guide — we won’t be getting any upside catalysts out of the news. INTC beat Street estimates with last quarter’s results, but it spooked the market with its outlook.

This time around, INTC heads into earnings season having pulled its forecasts. That makes the guidance part of its earnings report feel like a coin flip. Guidance, of course, is usually the most important part of any earnings release.

If the Intel earnings forecast disappoints investors yet again, it will be a while before INTC can reverse it downtrend.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/04/intel-intc-earnings/.

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