Intel's Market Sweet Spot

Paul Sakuma

Exterior view of Intel headquarters in Santa Clara, California.

As Intel prepares to release earnings tonight after the close, investors are clearly expecting good news. And for good reason.

All through the recession, through the brutal downturn, analysts had two things to say: recovery will come eventually, and when it does, the leaders in their respective industries will be the ones to benefit first, and most.

With better than 80 percent market share in the globe's microprocessor market, Intel continues to dominate, and continues to accelerate. Look, I don't deny the missteps, the legal issues that dog this company, but time and again, Intel has been able to push them aside, pay settlements and fines out of petty cash, and tighten its stranglehold on the market.

And now comes time to reap those rewards.

Hewlett-Packard, IBM, Cisco Systems, Dell and others are all talking about a server and enterprise spending upgrade cycle; Windows 7 from Microsoft is selling remarkably well with more consumers choosing to buy new PCs with the software pre-loaded, rather than merely buying the software itself; market research suggests Apple Mac sales are soaring; netbooks and all things mobile are selling swimmingly. Rival Advanced Micro Devices has made virtually no progress against Intel; and when it comes to a budding mobile rivalry with Qualcomm, it seems Intel has not yet begun to fight. In other words, if merely one market trend were swinging Intel's way, that'd be good news. But it seems EVERY market trend is moving in Intel's favor.

“After a poor 2009, the global PC and microprocessor businesses are continuing to return to a state of normality in the first quarter of 2010,” said Matthew Wilkins, principal analyst, compute platforms, for iSuppli. “Microprocessor sales in the first quarter will driven by continuing strong sales growth of notebook PCs, which we expect to account for 61 percent of worldwide PC shipments in the quarter. Notebook shipments in the first quarter are forecasted to rise by 37 percent compared to the same period in 2009 as consumers continue to gravitate toward mobile computing."

Meanwhile, the PC market is expected to benefit from the return of corporate spending in 2010.

Last quarter, Intel reported surprisingly strong margins, and a better than expected outlook for the balance of 2010. If there's an issue facing Intel, it's inventories, which likely increased again during Q1, and by how much will be closely watched tonight. Also, Wall Street has a tendency to get ahead of itself when it comes to expectations: estimates have been on the rise lately, and so have targets, always a concern when shares move too fast too soon. That could be a set-up for a sell-on-the-news evening tonight.

The Street is looking for 38 cents on $9.81 billion in revenue.

Look for margins approaching 60 percent and inventory under $450 million. Analysts I'm talking to are anticipating a beat-and-raise quarter and a generally optimistic tune on the conference call. Intel's in its sweet spot right now, and at only 12 times next year's earnings, it seems like if its momentum can continue, this stock still has a lot of room to run.

Consider these useful fast facts from the folks at iSuppli:

• Global revenue from shipments of general-purpose microprocessors, including the X86 PC-oriented chips sold by Intel, is expected to amount to $8.8 billion in the first quarter of 2010, up 28 percent from $6.9 billion during the first quarter of 2009, according to iSuppli Corp. However due to normal seasonal factors revenue will decline by 6.5 percent from $9.4 billion in the fourth quarter of 2009. The attached figure presents iSuppli’s quarterly forecast and estimate of microprocessor shipments in 2009 and 2010.
• Global PC shipments in the first quarter of 2010 are expected to amount to 77.8 million units in the first quarter of 2010, up 17.1 percent from 66.5 million in the first quarter of 2009. Shipments will be down by 12.4 percent from 88.8 million in the fourth quarter of 2009.
• Intel in the fourth quarter of 2009 held an 80.6 percent share of global microprocessor revenue, losing 1 percentage point of share from the fourth quarter of 2008. This total includes all types of general-purpose microprocessors. On a sequential basis, Intel gained 0.1 of a point from the 80.5 percent it held in the third quarter of 2009. iSuppli doesn’t anticipate any major changes in Intel’s market share in the first quarter.
• In the fourth quarter of 2010, chief Intel rival Advanced Micro Devices Inc. (AMD) accounted for 12.1 percent of worldwide microprocessor revenue, gaining 1.6 percentage points of share from the same period in 2008. AMD picked up 0.28 of a point of share over its position in the third quarter of 2009.

More on CNBC including:

• Plan Your Earnings Season Here
• Track All Things Intel Here

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