I know, I know, it's not until Thursday before we get Intel's fourth quarter earnings, but let's tee up the dialogue a little early and see what discussions this might spawn. I, for one, expect this company to beat expectations and also offer a rosier outlook than the Street might be anticipating.
Analysts are looking for 30 cents a share on $10.2 billion. Both numbers are decidedly better than the company's third quarter, and also substantially better than the fourth quarter a year ago. For the full year, look for 69 cents a share on $34.7 billion, down 25 percent and 8 percent year over year respectively.
Why my optimism?
Just look at the trends right now in smart phones and particularly netbooks, as well as comments from the company's top competitors, including Advanced Micro Devices, Texas Instruments, nVidia, and increasingly Qualcomm. Fact is, chips are hot right now, so are consumer electronics, and most notably, so are all things mobile. Intel's Atom microprocessor continues to run circles around all competitors in the netbook arena, and netbook growth by most of the major market research firms is expected to see spectacular momentum in 2010. Further, while Qualcomm might be enjoying widespread success with its Snapdragon microprocessor, it's still pretty pricey. So far there's been no competing chip on the market offering similar performance but at a lower cost. That's where Intel can make some market headway when it releases its offering toward the end of this year.
That's all nice for down the road, but what about today?
We've already gotten strong indications from the likes of Gartner and others that 2009 as far as personal computer sales are concerned, turned out far better than expected. A decline in PC sales turned into a nearly 3 percent gain last year, and most market research anticipates double-digit growth in 2010, thanks in large part to the Windows 7 upgrade cycle coming from Microsoft. That means 300 million PCs shipped last year. Intel is sitting pretty on so many fronts. If Apple Inc., an increasingly important Intel customer until it starts to integrate its own microprocessors from PA Semi down the road, sits at the nexus of all things digital media with iPhone, iPhone, the Mac, and iTunes/The Apple App Store, then Intel now finds itself sitting at the nexus of all kinds of tech: PCs, netbooks, soon smart phones and even new smart televisions.
CEO Paul Otellini faced enormous challenges from the moment he took over from predecessor Craig Barrett. When he took over, shares were around $27. At CES they were down to $14. In his four-plus years as CEO, he slashed thousands of jobs, eliminated various tech initiatives and took charge in what at the time might have seemed a quizzical way, but looking back struck exactly the right tone. Last year, at a time when everyone seemed to be hunkering down and cutting back, Otellini unveiled a $7 billion manufacturing investment strategy, with a big chunk of that money being spent in the US. And now that tech is turning around, that investment might have come at the most opportune time possible.
Now the company's shares are hovering at $21 a share. Auriga chip analyst Daniel Berenbaum raised his Intel rating to a hold this morning from sell, writing that channel checks … "suggest surprising (to us, anyway) strength in PC shipments — most recently we have heard about upside to desktop demand in China."
Quarter after quarter, I harp on guidance as the key nugget to watch for from most tech companies. That's the case, certainly with Intel. Keep an eye on gross margins: Will they be above 60 percent? And what about that guidance? Where's the strength? Is China enough to keep Intel's momentum alive, or is the company tracking strength in Europe and here in the US too? I suspect that a number of key metrics for Intel will not be merely good, but surprisingly good. Whisper numbers are important to watch here as well, as Wall Street once again tries to manage realistic expectations, against hopes, against pie-in-the-sky dreams. When times are bad, Intel has a nice track record of mollifying the Street. But when times are good, Intel's history of striking that good balance with investors is even better.
Thursday will set the tone for the rest of the tech sector that will be reporting in subsequent days and weeks. All indications are that Intel will deliver on earnings. Managing realistic expectations about what business will be like in the quarters to come might be the company's bigger challenge come Thursday.
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