Intel's third quarter: Does it get worse from here?

Intel's third quarter should be in line with the chip giant's previous warning. Meanwhile, analysts say consumer demand has stabilized.

Intel reports its third quarter earnings on Tuesday and the key item will be the fourth quarter outlook.

The actual third quarter results are going to be a bit anti-climactic. After all, Intel already warned that its revenue would be lower than it expected. Intel cited weak consumer PC demand, but said enterprise sales were holding up.

Analysts are currently expecting earnings of 50 cents a share on revenue of $10.99 billion. Gross margins are expected to be 66.07 percent. For the fourth quarter, Wall Street is expecting earnings of 50 cents a share on revenue of $11.3 billion, roughly flat sequentially.

Wedbush analyst Patrick Wang said in a research note:

Our checks indicate a modest improvement in September with decent sell-through during Golden Week (holidays in Japan and China). Our contacts also cite slightly better visibility and lackluster Black Friday expectations.

That September theme continued in other research notes. Piper Jaffray analyst Auguste Gus Richard said:

While consumer PC demand was weak in Q3, we believe it improved a bit in September. We expect the company to guide Q4 revenue to be flat to up 5% on revenue of $11.1B-$11.6B or slightly above consensus. Given the strong mix of enterprise and server revenue we are comfortable with our gross margin assumption of 66%, which is down from 67.2% in Q2.

Barclays Capital analyst Tim Luke said:

While the outlook for 4Q10 continues to appear clearly below seasonal, our checks suggest Taiwanese PC ODM/OEMs are now able to meet their lowered guidance with end market demand slowly recovering.

If those expectations hold, Intel's quarter is likely to be viewed as a bit of a relief. Why? Intel's warning won't be perceived as the beginning of the end, but just a hiccup amid relatively solid demand.

In any case, Intel doesn't seem to be easing off the capital spending. Many analysts noted that Intel has been increasing capital spending to prepare for 22 nanometer manufacturing. "We believe that Intel's 22nm process will likely be revolutionary and significantly extend Intel's power-performance lead over its competitors," said Richard.


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