Monday, April 18, 2011

Intel Corporation (NASDAQ: INTC): Q1 Earnings Preview 2011

Intel Corporation (NASDAQ: INTC) is scheduled to release its first-quarter earnings after the closing bell on Tuesday, April 19, 2011. Analysts, on average, expect the company to report earnings of 46 cents per share on revenue of $11.60 billion. In the year ago period, the company reported earnings of 43 cents per share on revenue of $10.30 billion.

Intel Corporation designs, manufactures, and sells integrated circuits for computing and communications industries worldwide. It offers microprocessor products used in desktops, nettops, workstations, servers, embedded products, communications products, notebooks, netbooks, mobile Internet devices, and consumer electronics, as well as in embedded designs, such as industrial equipment, point-of-sale systems, panel PCs, automotive  information/entertainment systems, and medical equipment. Intel is the world's largest supplier of microprocessors, the brains of personal computers, with roughly 80% of the global market share.

In the preceding fourth quarter, the Santa Clara, California-based company's net income was  $3.39 billion or $0.59 per share, compared to $2.28 billion or $0.40 per share for the year-ago quarter. Revenue rose 8% to $11.46 billion from $10.57 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of 53 cents per share on revenue of $11.37 billion. Gross margin for the fourth quarter increased to 67.5% from 64.7% a year ago.

Late the company said that it discovered a design issue in a recently released support chip, the Intel 6 Series, code-named Cougar Point, and has implemented a silicon fix. In some cases, the Serial-ATA ports within the chipsets may degrade over time, potentially impacting the performance or functionality of SATA-linked devices such as hard disk drives and DVD-drives. Intel expects the issue to reduce first quarter 2011 revenue by approximately $300 million as the company discontinues production of the current version of the chipset and begins manufacturing the new version. Full-year revenue is not expected to be materially affected by the issue. According to the company, the total cost to repair and replace affected materials and systems in the market is estimated to be $700 million. Since this issue affected some of the chipset units shipped and produced in the fourth quarter of 2010, the company would take a charge against cost of goods sold, which is expected to reduce the fourth quarter gross margin percentage by approximately 4 percentage points from the previously reported 67.5 percent. The company said that it now expects first-quarter revenue to be $11.7 billion, plus or minus $400 million, compared to the previous expectation of $11.5 billion, plus or minus $400 million.  The full-year revenue growth percentage is now expected to be in the mid-to high teens, compared to the company's prior expectation of approximately 10 percent.

Recently,  IDC and Gartner Inc. reported a decline in PC sales in the first quarter as the consumer market weakened and the sector took a hit from the rise of tablets, now seen as a serious threat to segments of that sector. Questions about the impact of the Japan crisis also loom over the two companies and the broader tech sector.

Intel Corp. is now aiming to accelerate a stalled entrance into the market for tablet chips.  Intel has largely missed out on the mobile computing wave because its processors are powerful but not as energy efficient as some competing products. For devices such as smartphones, where low power consumption is vital, Intel processors have been eclipsed by those built to the ARM Architecture by companies such as Qualcomm (NASDAQ: QCOM). ARM chips are inside most smartphone and tablets, including those sold by Apple (AAPL). The company’s Atom microprocessor dominates netbooks but has not made a significant impact in the smartphone or tablet markets. The company recently introduced a chip that’s designed to offer improved battery life in touch-screen computers.

In January,  the company raised its authorization limit for share repurchases by an additional $10 billion. The move increases the overall outstanding buyback authorization to $14.2 billion. Additionally, the chip maker also declared 15 percent increase in its quarterly dividend.

The company's stock currently trades at a forward P/E (fye Dec 25, 2012) of 8.95 and PEG ratio (5 yr expected) of 0.82. In terms of stock performance, Intel shares have lost nearly 19 percent over the past year.  

Full Disclosure: None.
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