By Wallace Witkowski, MarketWatch
Intel Corp. is looking to report its second quarter of revenue growth in a row after sales stalled at the beginning of 2019, but only if data-center sales can offset declines in the chip maker’s largest segment.
Intel /zigman2/quotes/203649727/composite INTC -3.29% is scheduled to report fourth-quarter earnings after the market close on Thursday.
At CES, Intel announced new laptop and server chips along with new mobile processors code-named “Tiger Lake,” and the chip maker clearly benefited from 2019’s return to PC sales growth. Data-center sales, however, remain the focus as they’re Intel’s largest segment that is showing growth.
Data-center group, or DCG, revenue is expected to rise 5.2% to $6.39 billion, according to FactSet data, while Intel’s largest segment — client-computing, the traditional PC group — is expected to decline 0.8% to $9.75 billion from the year-ago period.
On Tuesday, Jefferies analyst Mark Lipacis upgraded Intel’s stock to hold from underperform and hiked his price target to $64 from $40 on the belief that big changes are in store for the beleaguered chip giant including a possible future where it sells its manufacturing facilities, or fabs, and has a contract manufacturer like Taiwan Semiconductor Manufacturing Co. /zigman2/quotes/207385621/delayed TW:2330 -1.09% make its chips the way Advanced Micro Devices Inc. /zigman2/quotes/208144392/composite AMD -3.16% or Nvidia Corp. /zigman2/quotes/200467500/composite NVDA -4.11% does.
While going fabless is less likely in the short term, Lipacis said, Intel could also become leaner by shedding its memory chip business or cutting its operating expenses given the company’s selling, general and administrative expenses are “well above the sales adjusted industry norm.”
Much of Lipacis’s bias against Intel comes from the observation that its core product, the x86 chip architecture, is no longer as essential as it used to be.
In his note, Lipacis said “the center of gravity in computing is drifting away from x86 both at the edge (to IoT devices from PCs and cell phones) and in the data center (to parallel processing architectures). Since the new computing devices are not centered on x86, Intel is simply becoming less relevant. “
At the same time, Jonathan Petersen, also a Jefferies analyst, said data-center leasing volumes, which are a leading indicator of chip sales, are well above a trough set in the first quarter of 2019, suggesting a recovery in spending from cloud providers.
What to expect
Earnings: Of the 37 analysts surveyed by FactSet, Intel on average is expected to post adjusted earnings of $1.25 a share, up from the $1.21 a share expected at the beginning of the quarter but down from the $1.28 a share reported last year. Intel expects about $1.24 a share. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, calls for earnings of $1.30 a share.
Revenue: Wall Street expects revenue of $19.23 billion from Intel, according to 33 analysts polled by FactSet. That’s up from the $18.79 billion forecast at the beginning of the quarter and the $18.66 billion reported last year. Intel forecast about $19.2 billion. Estimize expects revenue of $19.30 billion.
In other segments, nonvolatile memory solutions revenue is expected to rise 11% to $1.23 billion, compared with the year-ago period. “Internet of Things,” or IoT, revenue is expected to rise 28% to $1.05 billion.
Stock movement: Intel shares are up 17% since the company’s last earnings report. In comparison, the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -3.15% has advanced 9.4%, the S&P 500 index /zigman2/quotes/210599714/realtime SPX -3.03% has gained nearly 11%, the tech-heavy Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -2.77% has grown nearly 15%, and the PHLX Semiconductor Index /zigman2/quotes/210598361/realtime SOX -3.06% has increased nearly 19% in that time.