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Can Intel Deliver Upside In Q1?

 April 17, 2012 01:01 PM

(By Mani) Chip giant Intel Corp. (NASDAQ:INTC) is expected to report lower earnings and revenues for its first-quarter, which the company will report on April 17.

Wall Street, which has a cautious stance on Intel over decelerating PC shipments, expects the company's earnings to fall 11 percent to 50 cents, according to analysts polled by Thomson Reuters. In the past 60 days, there were no change in the consensus estimates.

In the past four quarters, Intel's earnings have surpassed the Street's view, but the margin of beat has been decreasing with each quarter. It declined to 4.90 percent in the fourth quarter of 2011 versus 21.70 percent, 6.60 percent and 5.90 percent in the first to third quarters of 2011, respectively.

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Meanwhile, analysts expect a marginal drop in revenue to $12.84 billion, which, if materializes, could break a four-quarter streak of 20 percent plus growth in revenues. In the first quarter of 2011, Intel generated revenue of $12.85 billion.

In the preceding fourth quarter, Intel earned $3.36 billion or 64 cents per share, up from $3.18 billion or 56 cents a share last year. Excluding items, the chipmaker earned $3.54 billion or 68 cents a share, higher than $3.19 billion or 56 cents a share in the prior year quarter. The company's fourth-quarter revenues rose 21 percent to $13.9 billion.

Perhaps  the Street view could be overly pessimistic as PC shipments have shown signs of recovery amid easing of hard disk drive constraints. On better-than-expected growth in the EMEA region, global PC shipments have grown 1.9 percent in the first quarter, according to Gartner.The results exceeded Gartner's earlier projections of a 1.2 percent decline for the quarter.

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In addition, the Santa Clara, California-based Intel is expected to benefit from the ramp up of its server platform Romley and Ivy Bridge processor launch in the upcoming months.

"For Q1, we believe the mid-point of Intel's guidance, or $12.8bil (range $12.3bil-$13.3bil), proves to be a low-bar driven primarily by Romley strength, as we believe Enterprise and Data Center markets remain strong," RBC Capital Markets analyst Doug Freedman wrote in a note to clients.

Meanwhile, Intel possesses unparalleled manufacturing capability as its gross margins are supported by leading-edge production (12- to 18-month advantage that could extend), plentiful equipment reuse to next node migration, and 3D tri-gate transistor gate structure on 22nm.

In addition, solid processor average selling price (ASP) trends also favors Intel due to the seasonal mix shift towards corporate PCs, new products ramping and lean channel inventories. As a result, the company is expected to give a strong outlook for its second quarter.

"We expect the trends from 1Q to support solid 2Q growth as Ivy Bridge ramps; the return towards normal hard drive supply and pricing along with a mix shift to ultrabooks (~10% of 2QE ODM notebooks) support potential upside," UBS analyst Uche Orji wrote in a note to clients.

Out of the 53 analysts covering Intel stock, 23 of them rate the shares as "buy" or "strong buy"; 26 of them have "hold" rating, and 4 of the analysts rate it as "underperform".

Intel shares have gained 15 percent year-to-date and 43 percent in the past one year. They reached a new multi-year high on Monday at $28.55, the stock's highest level since July 2005.  Intel's earnings need to beat the Street to sustain their upward momentum.

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