Intel's first quarter report: What to expect
Intel rolls out the first big technology earnings report after market close Tuesday and analysts are expecting a quarter in line to slightly below expectations.
Intel (all resources) is expected to report earnings of 25 cents a share and sales of $9.63 billion for the quarter ending March 31, according to Thomson Financial. For the second quarter ending June 30, Intel is expected to report earnings of 28 cents a share on revenue of $9.23 billion.
However, those targets are a little more fluid. Intel will spin out its NOR flash business into a new entity called Numonyx. It's unclear how many analysts have accounted for the spin-off into their earnings projections. Thomas Weisel analyst Kevin Cassidy reckons that the NOR flash business spin-off isn't fully reflected in estimates. In other words, Intel may have a few cents a share more leeway than it would get under normal circumstances. Also beware those initial headlines from the talking heads.
Overall though, Intel's revenue target for the first quarter is below its midpoint of guidance. The chip giant had projected revenue between $9.4 billion and $10 billion for the first quarter.
A few key themes to watch:
Gross margins: J.P. Morgan analyst Christopher Danely expects Intel's gross margins to be about 54 percent, in line with estimates. Piper Jaffray analyst Auguste Richard reckons that Intel may cut its annual gross margin target of 57 percent plus or minus a few points.
How is chip demand? In general, analysts won't be shocked if Intel falls short of its revenue target due to "weaker than expected microprocessor sales," says Danely.
What about inventory? Danely wrote in a research report:
We believe the lower than expected revenue is being driven by excess microprocessor inventory in the channel and decelerating PC demand. We would note YoY unit growth in microprocessors has been in the 16%-20% range for almost three quarters, the highest since 1999-2000 and more than twice the average rate of 8%. We believe AMD was also a victim of weakening conditions in the PC end market in 1Q08 and as a result, negatively pre-announced due to lower than expected revenue on April 7th.
AMD: One thing that will be interesting about Intel's comments is the company's take on the competition. Intel never mentions AMD directly, but if it tempers its guidance it's possible that it expects more competition from its smaller rival, which has just begun shipping quad-core chips.