Investors are expecting the same old, same old out of Intel (INTC) earnings Tuesday, as slumping PC shipments, a strong dollar and a weak global economy continue to weigh on INTC’s bottom line.
But that doesn’t mean INTC’s forecast has to be a downer too. Indeed, one of the main drags on PC sales in the most recent quarter could actually become a tailwind soon enough.
The launch of a new operating system from Microsoft (MSFT) is always good news for PC sales, but the effects on the market are not smooth.
PC shipments usually slow ahead of an OS release as customers put off buying new PCs before it hits, and that’s exactly what they did before Windows 10 came out in late July. Compounding matters, INTC’s customers also slowed shipments ahead of the chipmaker’s introduction of its Skylake chip.
And even though Windows 10 came out during the quarter, it had “minimal impact” on PC shipments, according to Gartner. The market researcher says PC shipments fell 7.7% year-over-year in Q3.
On the brighter side, that was better than the second-quarter’s drop of 9.5%, and that deceleration should continue into year-end as the effects of the Windows 10 upgrade cycle kick in.
Although that’s of no help to the most recent quarter’s results, it does bode well for containing INTC’s slow bleed in the PC segment for the current quarter and beyond.
The market is also keen to have any color from INTC on its data-center business. The explosion of cloud computing helps offset some of the damage from INTC missing the shift to tablets and smartphones. Indeed, INTC controls about 90% of data-center market, good for roughly $13 billion in annual sales.
More importantly, INTC thinks it can grow its data center business at a compound annual growth rate of 15%.
INTC Earnings, Revenue Set to Fall
As for the most recent quarter, however, the Wall Street forecast is once again one of declining earnings per share. Analysts, on average, forecast adjusted Intel earnings to come in at 59 cents a share, down from 66 cents a share in this quarter last year, according to a survey by Thomson Reuters.
The Street expects revenue to slip 2.2% to $14.23 billion.
Intel typically lets investors know ahead of time if it’s going to come up short of guidance, so the market can be reasonably confident that INTC won’t blow estimates. After all, Intel earnings per share have matched or exceeded analysts’ average estimate for six straight quarters now.
As such, Intel earnings should be free of surprises, and that should suit investors just fine.
The PC story is well-known and should be more than adequately reflected in the INTC stock price. The high-margin data-center group has potential to get analysts to update their views for year-end results.
But the big picture remains the same — INTC is a massive and mature business left out of mobile, which is the most important market of the current day.
INTC stock is down 11% year-to-date, and there’s little reason to expect Intel earnings to change that on Tuesday.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
