Intel Q4 – A later tide.

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The tide is not going to turn on PCs until Q3 14.

  • Intel reported Q4 results that met expectations but cautious commentary on the enterprise outlook and weak guidance dampened enthusiasm for a recovery in the PC sector this year.
  • Q4 revenues / EPS were $13.8bn / $0.51 compared to forecasts of $13.7bn and $0.52.
  • Q1 guidance was for revenues of $12.3bn-$13.3bn right in line with consensus at $12.8bn.
  • However implied EPS missed forecasts by a meaningful margin as OPEX will be higher than anticipated giving EPS of around $0.37.
  • This compares unfavourably to consensus at $0.42.
  • This miss was compounded by commentary surrounding weakness in the Enterprise segment.
  • This was generally expected to be strong in Q4 due to budget flush as well as the need to migrate off Windows XP where Microsoft is ending support this year.
  • This was plenty to pop the fledging balloon of hope that finally the PC market is seeing signs of recovery.
  • The shares were down around 5% in after-hours trading.
  • Intel’s full year 2014 guidance is also cautious and it is in line with other commentators in expecting the overall PC market to decline slightly in 2014.
  • Consensus has revenues / EPS of $52.6bn / $1.90 for the full year and Intel has guided to $52.7bn (flat) with implied EPS of $1.82.
  • Revenues are in line but the market was hoping for better profitability with EPS expected at $1.90.
  • Intel’s forecasts are looking for a decline in the PC Client group of mid-single digits which I think could end up being too cautious.
  • On the one hand Intel boasts of 70 hybrid PC designs in the stores by Q3 and signs of stabilisation in the PC market but then forecasts a decline in 2014.
  • This basically tells me that Intel doesn’t really know what to expect and is simply hedging its bets.
  • This is not an enormous surprise as Windows 8 has been a spectacular disappointment to date.
  • However, I think the time is right for the PC market recover as the hardware of hybrid devices is reaching the point where compromises no longer have to be made (see here).
  • Hence, I think that hybrid devices should drive the PC market to grow slightly in 2014.
  • This would make the forecast for the PC client group too low and it is there that the scope for surprise remains.
  • The market was hoping for recovery but the time when this will begin to materialise is when the real devices are available.
  • Hence, I am looking for Q3 to be when the tide begins to turn.
  • This report is likely to drive some softness in Microsoft which I would wait for before picking it up.
  • Microsoft, Yahoo! and Intel remain three of my top picks for this year.

 

RICHARD WINDSOR

Richard is founder, owner of research company, Radio Free Mobile. He has 16 years of experience working in sell side equity research. During his 11 year tenure at Nomura Securities, he focused on the equity coverage of the Global Technology sector.