Intel has a few challenges---a slow growth PC sector and a mobile momentum---but a strong data center business is expected to wash away a lot of fourth quarter worries.
The chip giant is expected to report fourth quarter earnings of 52 cents a share on revenue of $13.72 billion, up just a smidge from the same period a year ago.
Estimates for earnings have been creeping up because conditions are looking a bit better for Intel even though long-term challenges remain.
Here's why things may be looking up for Intel (for now):
- PC sales declines have moderated. Gartner and IDC said PC sales were down 6 percent to 7 percent in the fourth quarter compared to 8 to 9 percent in the third.
- There's an enterprise refresh cycle for Windows in the enterprise.
- Data center sales growth is estimated to be back to a mid-teens growth rate.
That last item is what'll save the day for Intel.
Alex Gauna, an analyst at JMP Securities, said that Intel's data center business should deliver in the fourth quarter. In the long-run, however, Gauna isn't so sure Intel can maintain its data center unit's dominance. Gauna said:
Intel is already seeing re-acceleration and believes it can get back on track to a 15% compound annual growth rate over the next few years. The problem with having too much confidence in this forecast is that Cloud, HPC and Telco growth is still expected to outgrow enterprise growth, and a concentrated base of powerful Cloud players is likely to continue exerting pressure against both enterprise demand and pricing.
Those concerns will be for another day though. Intel is likely to benefit from extremely low fourth quarter expectations.
Stifel Nicolaus analyst Kevin Cassidy said one topic for the conference call will be how Intel is faring in the microserver market. Cassidy said:
While we believe Intel has done an admirable job in covering the micro-server market, we expect ARM-based solutions will begin to appear in the market in 2014. In our view, investors should watch for the developments in the Atom-based products for Intel to slow ARM's momentum
In the long run, Intel's challenges are clear:
- Intel needs more mobile momentum, but Qualcomm leads the pack in wireless.
- The ARM architecture could gain traction in the enterprise and already has a foothold for Internet of things deployments.
- PCs are in transition at best and in a long run decline at worst.
- It's unclear whether Intel's heavy investment in manufacturing will pay off forever, but opening its plants to ARM players is encouraging.
For now, Intel's results appear to be pretty solid. Pending a first quarter outlook, Intel looks like it has weathered a storm. Analysts are expecting earnings of 42 cents a share in the first quarter on revenue of $12.78 billion.