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Intel Earnings Preview: It's in the Margins

INTEL (INTC)

Semiconductor giant. #1 producer of the brains of PCs, aka CPUs. Also makes memory, chipsets and all manner of silicon-based chippery for mobile phones and devices. Dow component.

Reports Q1 earnings Tuesday 4/15 at approx. 410p ET. Conference call at 5p ET.

Exterior view of Intel headquarters in Santa Clara, California.
Paul Sakuma
Exterior view of Intel headquarters in Santa Clara, California.

WHAT WILL MOVE THE STOCK:

EPS AND PROFIT MARGINS - The two key numbers to watch are earnings per share and gross profit margins. Q1 EPS is expected to be $0.25. Scroll down to the estimates section for all the EPS and revenue forecasts. Profit margins are expected to be 54%, which is lower than previous forecasts because...

WE'VE BEEN WARNED - On March 3rd, Intel dropped its gross margins guidance to 54% plus or minus 1% from 56% plus or minus a couple percent. Intel cited lower prices on flash memory as the reason for the warning.

DO WARNINGS TAKE THE SURPRISE OUT OF EARNINGS REPORTS? - Often enough, yes. However, this is Intel. There are key questions people still want answered. Did profit margins really fall that much? Were there declines in areas other than flash memory?

GUIDANCE - Where to now? What does Intel expect for the rest of the year?

IT'S NOT JUST CPUs - This should be obvious since flash memory is taking a bite out of first-quarter profit margins. Still, it bears repeating. How are sales of chips for mobile devices and other product lines?

COMPETITION WITH AMD - Are sales declines at AMD good news or bad news for Intel? There's a lot of debate on this. Has Intel stolen market share from AMD or is demand for all chips in decline? Last week, AMD said Q1 sales would be well below expectations. Fast Money's Jeff Macke thinks AMD's pain is bad news for Intel because the market share losses are already baked in.

PRODUCT UPDATES - Does Intel have too much or too little inventory? Is production of various chips ramping up as expected? Are there any changes to its product "roadmaps" of when new chips will be introduced?

HE KNOWS THIS STUFF - CNBC Technology reporter Jim Goldman already has a blog on Intel earnings. Go, go now.

ESTIMATES:

Q1 Estimates: EPS down 6% to $0.25, revenues up 9% to $9.629 billion

Q2 Estimates: EPS up 26% to $0.28, revenues up 6% to $9.235 billion

FY 08 Estimates: EPS up 9% to $1.29, revenues up 4% to $39.726 billion

Source: Thomson Financial

Year-ago actuals: Q1 EPS $0.27, Rev. $8.852 billion

FACTOIDS:

REVENUE GUIDANCE FOR Q1 - In January, Intel said Q1 would come in between $9.4 billion and $10 billion -- which means the street thinks Intel's revenues will come in below the company's guidance.

NOT A GREAT START TO THE YEAR - Intel shares nearly broke above $28 in mid-December, but in late January the stock almost fell below $18. At least AMD's chart is uglier...