By Wallace Witkowski, MarketWatch
Intel Corp. may have a better-than-expected June-ending quarter at the expense of the next as PC sales rose in part in anticipation of upcoming tariffs in the ongoing U.S. trade war with China, and at least one analyst cautions that will cause the chip maker to slash its outlook for the year again.
Intel /zigman2/quotes/203649727/composite INTC +1.24% is scheduled to report second-quarter earnings after the close of markets on Thursday.
Evercore ISI analyst C.J. Muse, who has an in-line rating and a $50 price target on Intel, said he expects weak data-center sales in the second half to drag Intel’s outlook for the year down to $4.20 a share on revenue of $68 billion.
Back in April, Intel had forecast an outlook of $4.35 a share on revenue of about $69 billion, which at the time was below the Wall Street consensus. Analysts surveyed by FactSet currently expect $4.23 a share on revenue of $68.47 billion.
“Elsewhere, we look for Intel to focus on what the company can control – namely cost reductions, focus on [return on invested capital] across each business (we understand fab-lite being considering for many businesses outside of CPUs) as well as deploying capital aggressively toward stock buybacks,” Muse said.
Earnings: Of the 35 analysts surveyed by FactSet, Intel on average is expected to post adjusted earnings of 89 cents a share, down from the $1.01 a share expected at the beginning of the quarter, and the $1.04 a share reported a year ago. Intel has forecast 89 cents a share. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, calls for earnings of 91 cents a share.
Revenue: Wall Street expects revenue of $15.68 billion from Intel, according to 33 analysts polled by FactSet. That’s down from the $16.85 billion forecast at the beginning of the quarter, and the $16.96 billion reported last year. Intel predicted revenue of about $15.6 billion. Estimize expects revenue of $15.67 billion.
By segment, data-center group, or DGC, revenue is expected to drop 12% to $4.89 billion, according to FactSet data, while Intel’s largest segment, client-computing or traditional PC, is expected to decline 6.8% to $8.13 billion from the year-ago period. Nonvolatile memory solutions revenue is expected to fall 18% to $885.9 million, compared with the year-ago period. “Internet of Things,” or IoT, revenue is expected to rise 6.9% to $941.1 million.
Stock movement: Intel shares have fallen nearly 10% since the chip maker’s last earnings report in late April. In comparison, the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.08% has advanced 2.5%, S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.08% has gained 2.7%, the tech-heavy Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +0.18% has advanced 1.8%, and the PHLX Semiconductor Index /zigman2/quotes/210598361/realtime SOX +0.74% has increased 2.2% in that time.
Of the 41 analysts who cover Intel, 14 have buy or overweight ratings, 17 have hold ratings and 10 have sell or underweight ratings.
What to look out for on the call: Expect a big June-ending quarter but a potentially week outlook for the September ending quarter, said Mizuho Securities analyst Vijay Rakesh, who has a buy rating and a $52 price target on Intel.
Rakesh said that PC shipments for the June-ending quarter are tracking up 20% to 35% quarter-over-quarter “driven by stronger commercial PC shipments and, importantly, worries of an upcoming 25% tariff driving a massive pull-in of SepQ shipments into JunQ.”
That may be reflected in what appeared to be sooner-than-expected relief for the beleaguered chip sector as research firms Gartner and IDC reported a rise in global PC shipments for the second quarter, following two straight quarters of declines.
“Both Gartner and IDC cited improved supply of Intel processors as contributing to the shipment number,” said Instinet analyst David Wong wrote in a recent note. “Although we think there remain risks for the PC markets (and other electronic end markets), we believe that these latest estimates reflect positively on Intel and AMD.”
Bernstein analyst Stacy Rasgon, who has an underperform rating and a $39 price target, also sees the PC bump as temporary.
In a note, Rasgon said “we think any client upside is likely to be temporary (and with the forward pricing trajectory an open question), and datacenter expectations in the 2H consensus appear very aggressive, hence mix between the two segments could easily disappoint.”
“While the stock has rebounded recently off the trough, it still seems to have little going for it at the moment, with the bull case from here seemingly mostly ‘it’s cheap, and maybe something will go right,’” Rasgon said.
A previous version incorrectly stated AMD’s scheduled earnings. It has been corrected.