Intel's Q3, outlook will depend on Windows 8.1, PC uptake

Intel's Q3, outlook will depend on Windows 8.1, PC uptake

Summary: Intel's third quarter results should deliver, but the outlook is where things get tricky. Selling chips into a Windows 8.1 hardware cycle is easy. Getting consumers to buy may be a different game entirely.

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Intel's third quarter earnings on Tuesday are expected to be solid, but the outlook for the fourth quarter is going to be tricky. Why? Intel's third quarter was highlighted by selling chips into the channel. For the fourth quarter, Intel will need all of those new Windows 8.1 convertible systems to actually sell well.

Wall Street is expecting Intel to report third quarter earnings of 53 cents a share on revenue of $13.47 billion. As for the fourth quarter outlook, Wall Street is expecting earnings of 53 cents a share on revenue of $14.02 billion.

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Will these devices bolster Intel's fourth quarter confidence?

In the third quarter, Intel launched new processor families across the spectrum. These processors — Baytrail, Haswell, and Brickland — are expected to cover the tablet and mobile device markets well.

Deutsche Bank analyst Ross Seymore said:

Given the launch of so many new products into an uncertain demand environment for Windows based 2-in-1 devices and traction in the Android eco-system being modest (few high volume SKUs) we suspect Intel will be somewhat cautious on 4Q13 outlook.

The only relatively sure bet for Intel is the results for its data center, but economic worries may ding those results a bit. Many analysts are waiting for Intel's Nov. 21 analyst meeting to determine how the chip giant will deliver on gross margins and mobile growth.

Few analysts are expecting a fourth quarter budget flush and the PC spending that goes with it. Given that post-PC reality, Intel is going to have to closely watch its cost structure. Analysts expect Intel to project confidence about the Windows 8.1 launches, but few agree with the chip giant. JMP Securities analyst Alex Gauna sums up the view:

Server demand has failed to live up to Intel double-digit growth targets and PC demand has tracked toward double-digit industry declines, and we don't hold out much hope of budget flush, holiday season sales, or expiration of Windows XP support in 2014 materially altering these trends.

Gauna added that Intel faces some big threats such as the ARM-based ecosystem that dominates mobile and little progress in the smartphone and tablet market. Those negatives are offset by cloud and data center dominance and the ability to launch a foundry business to better utilize Intel's manufacturing strengths.

On the bright side, expectations for Intel are pretty low. Piper Jaffray analyst Auguste Gus Richard said that expectations for Intel's quarter were "lower than a snake's belly in a wagon rut," but that could be a positive. Richard said that Intel's market valuation reflects the reality "where PC growth is negligible to nonexistent."

The catch is that Windows 8.1 and new PCs could stimulate some demand. Should that scenario play out Intel will look a lot better. Richard added:

PCs are overdue for a bounce as PC demand has declined for the last two years. After three strong years, the tablet market will likely see slowing growth which should slow PC cannibalization.

Topics: Hardware, Intel, Laptops, Processors, Tablets

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12 comments
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  • wait for next Gen Windows 8.1 Netbooks and mini Ultrabooks

    affordable, mobile, and do Tablet functionality and PC productivity
    swisslakes
    • Intel should be more focused on the smartphone than W8.1 tablets,

      ultrabooks and convertibles at this point. This is time for focus intel, not excuses.
      Johnny Vegas
  • Egg =/= Chicken

    4Q RESULTS will depend on win 8.1 uptake.
    4Q OUTLOOK depends on how much "stuff" Intel's CFO is smoking.

    He has no idea how many of those pre-built BayTrail and Haswell Win 8.1 devices will sell and convert into revenue for Q4. We'll know on Jan 15th.

    Strange that we've seen no "What will you buy in Q4" surveys, not even a sniff of one.
    Just the usual "Win 8 is crap, win 8RT is more crap and Win 8.1 is probably crap" mantras from the fanbois.
    P0l0nium
    • RE: Egg = / = Chicken

      Well if Windows 8 or 8.1 wasn't such a pain in the ass O/S it would be selling better. Microsoft is just being a dimwit by trying to come to the Cell phone mobile market 10 years after Apple, Droid and Blackberry broke into it.

      Microsoft is just making the rest of us pay for it.
      aja-allen
      • How is it working out for Motorola and Blackberry

        with their huge 10 year lead you mention?
        Emacho
        • Re: Motorola and Blackberry

          Let's see...

          Motorola never had significant market outside of the US. By the time they started seriously targeting the international market, their business went off. The non-US market for mobile phones has always been larger.

          Blackberry has always been about "deals". If you own a Blackberry, you are likely forced by your operator to use special "BB data plan", which as of today is typically visibly more expensive than the "generic" data plan. Understandable, because the telco was forced to install and service BES.
          Blackberry has been popular because of sales to large enterprises. When you are given a BB phone by your employer, you are going to like it, eh?
          How many have purchased BlackBerry on their own, for personal use? I know very few such people.
          There are "exceptions" to this, for example in Africa, you would see a lot of BB phones. Not because they are any better, but because the local monopoly telco made a deal with BB.
          danbi
  • Intel's only hope

    Is to divorce Microsoft and stop being dependent on the fate of Windows. Microsoft themselves are trying to phase out Windows as a platform and this definitely means lower demand for Intel's chips.
    Or, perhaps finally manage to participate more seriously in the mobile market, which is already larger than the desktop.. but where unfortunately, Intel is not yet competitive.

    Because of Microsoft's Windows, Intel has tuned their platform for high benchmark performance primarily by pushing process shrink. This strategy has let them prevent AMD from climbing on the top "PC" market. But in mean time, AMD has focused more on the low-mid end, with their APUs -- and this is where the present growth is. Intel "wasted" about two years to go to Haswell-class CPUs.

    At the same time, for much better threading UNIX applications (think Linux here), AMD has always had the lead, since Opteron. Intel simply cannot compete there, because of the expensive small process fabs.

    So it may turn out Intel's only hope to sell more desktop chips is to stop optimizing for Windows workloads and target UNIX/Linux instead. This is the growing market.
    Funny enough, most of the mobile market is running UNIX too (iOS, Android).
    But, Intel faces a dilemma here: that is the kind of workload they have on their "server" chips as well.
    danbi
    • Did you just say Linux desktops are the only chance to save intel?

      You never cease to deliver something truly unbelievable.
      Emacho
      • Re: You never cease to deliver something truly unbelievable.

        At your services, Sir.

        Just don't grow too dependent.
        danbi
    • A Processor is a Processor...

      ... Intel just makes them.

      You're acting as if they're Microsoft's left arm, when in reality, they just make CPUs.

      They have focuses on other markets, hence why Bay Trail works on both Windows and Linux (Android).

      Intel even provides chips for Apple, and is OS X not Unix-based?

      They have no need to "stop optimizing for Windows workloads and target UNIX/Linux instead".

      (Also, Android doesn't run on Unix, it runs on Linux. As much as they share in common, they're not the same. A chicken is not a turkey.)
      ForeverCookie
      • RE: You're acting as if they're Microsoft's left arm

        Right arm, actually. Intel and Microsoft have been playing as a team for well over twenty years now and it will be interesting to see where this new tend leads them both over the next two years.
        InformationRetrieval
      • Re: A chicken is not a turkey.

        They are both birds, not fish.

        And yes, Intel has optimized their CPU designs heavily towards Windows. Or more precisely, Intel has bastardized their CPUs so that they are "better" at running primarily Windows.
        Of course, UNIX runs on everything, including bastardized CPUs. This is not news.
        It however runs better on CPUs with fewer compromises.

        As for Intel and Apple.. When Apple was betrayed by IBM and decided to move off PowerPC, they asked Intel for a CPU tailored to their own design. Because, Apple needed something of the quality of the previous Motorola CPUs and (in a way) the PowerPC CPUs.

        Intel refused. Why, if they "just make CPUs"?
        Research the reasons behind this refusal and you will come to understand my post above.

        Also, recently, Intel are trying to in fact provide Apple with CPUs that practically nobody else uses, because "they are too expensive" or "they are so large" etc. They will do better to continue this trend. Or Apple might just give up.
        danbi